The central bank’s Monetary Policy Committee (MPC) voted unanimously on Wednesday (Aug 13) to lower the rate by 25 basis points to 1.50%, as it looks to support a sluggish economy grappling with negative inflation and the impact of US tariffs, reports the Bangkok Post.
MPC secretary Sakkapop Panyanukul said the committee wants monetary policy to be more accommodative to ensure financial conditions remain conducive to business adjustment, easing the burden on vulnerable groups such as small and medium enterprises (SMEs) and low-income households.
In the current easing cycle, the central bank has lowered the policy rate four times by 100 basis points starting in October last year, followed by cuts in February, April and August this year, each by 25 basis points. It left the rate unchanged at its June meeting.
Nineteen of 26 economists surveyed by Reuters predicted the policy rate would be 1.25% by the end of 2025, one forecast 1.00% and seven said it would stay at 1.50%.
Headline inflation has been in negative territory since April and has consistently undershot the central bank’s 1-3% target range throughout this year. The committee also acknowledged that more signs of weakness in the economy are emerging.
“The Thai economy in 2025 and 2026 is projected to expand close to the previous assessment. Nevertheless, US trade policies will exacerbate structural problems and weaken competitiveness,” the MPC said in a statement. “Additionally, certain sectors of the economy have become more vulnerable, particularly SMEs.”
The central bank forecasts GDP growth of 2.3% this year and will review projections for both 2025 and 2026 at the next MPC meeting in October, said Mr Sakkapop.
He said that a slowdown in the second half of this year is expected to be driven by US trade policies ‒ both direct and indirect ‒ alongside a decline in short-haul tourist arrivals due to intensified regional competition.
“These developments will affect income for SMEs, employees and self-employed workers. Private consumption is expected to be subdued due to weakening consumer confidence and income trajectory,” the MPC statement said.
It also noted that credit growth remains negative due to increased credit risks, particularly in small businesses and low-income households, alongside heightened debt repayments and reduced credit demand by large businesses amid heightened economic uncertainty.
The next MPC meeting will take place on Oct 8, a week after new governor Vitai Ratanakorn takes office, succeeding Sethaput Suthiwartnarueput who has reached retirement age.
EARLIER THAN EXPECTED
Market analysts had already expected the central bank would make two interest rate cuts during the remainder of 2025. However, the timing of Wednesday’s reduction surprised some economists.
Kasikorn Research Center, for one, had not expected a reduction this week, said deputy managing director Nattaporn Triratanasirikul.
“The [MPC statement] clearly indicated that the decision was primarily motivated by challenges facing SMEs, which are now confronting the additional burden of US tariffs alongside their longstanding structural problems,” she said.
Following this rate reduction, K-Research anticipates the central bank may cut rates again at its October meeting. Nonetheless, it hasn’t dismissed the possibility of a third cut in December.
Poonyawat Sriesing, senior economist at SCB EIC, the research arm of Siam Commercial Bank, said his team anticipated Wednesday’s rate reduction given mounting economic risks, particularly from US tariffs, while inflation remained subdued.
“Although Thailand secured a lower 19% tariff rate compared to the initially announced 36%, this doesn’t guarantee smooth access for Thai exports to the US market,” he said. “American importers will certainly negotiate for lower prices, compressing profit margins for Thai products.”
Mr Poonyawat said other countries would likely adopt protectionist measures to shield their domestic markets from export influxes.
SCB EIC maintains its 2025 GDP forecast range of 1.5-2%, awaiting the release of official second-quarter GDP data from the National Economic and Social Development Council on Monday.
Exports could still record some growth for the entire year after a 15% increase in the first seven months, said Mr Poonyawat.
“We are more worried about the economic growth next year when exports will tend to decline substantially,” he said.