Bank of Thailand Cuts Rates to Boost Slowing Economy
The Bank of Thailand has taken a decisive step to stimulate the nation’s sluggish economy by reducing its key interest rate by a quarter percentage point. This move, which lowers the one-day repurchase rate to 1.50%, marks the fourth rate cut in 10 months and brings the rate to its lowest level in over two years. The decision by the Monetary Policy Committee (MPC) was unanimous and was made in an effort to combat persistent negative inflation and to mitigate the negative impact of US trade policies. With inflation consistently undershooting the central bank’s target range of 1-3% throughout the year, the rate cut signals a strong intent to inject liquidity and encourage economic activity. This final policy meeting was led by outgoing governor Sethaput Suthiwartnarueput, just weeks before his retirement.
US Trade Policies and Economic Vulnerabilities
While the MPC’s projections for Thailand’s economic growth in 2025 and 2026 remain largely stable, the committee’s statement acknowledged several growing signs of weakness, particularly in the latter half of the year. The report highlighted that US trade policies are expected to exacerbate structural problems and weaken the country’s overall competitiveness, both directly and indirectly. This, in turn, is projected to disproportionately affect vulnerable sectors of the economy, most notably small and medium-sized enterprises (SMEs). The MPC also noted that private consumption is expected to be subdued due to a combination of weakening consumer confidence and a challenging income trajectory for a significant portion of the workforce, including employees and the self-employed. These factors collectively paint a picture of an economy facing considerable headwinds.
Subdued Credit Growth and Future Leadership
The committee’s assessment also pointed to a concerning trend of negative credit growth, which is largely a consequence of increased credit risks. These risks are particularly pronounced within small businesses and among low-income households, which are already struggling with heightened debt repayment burdens. The MPC also observed a decrease in credit demand from larger businesses, who are taking a more cautious approach amid the current economic uncertainty. Looking forward, the next chapter for the central bank will begin with a change in leadership. The next MPC meeting is scheduled for October 8, and will be the first to be presided over by the new governor, Vitai Ratanakorn. Mr. Ratanakorn’s tenure will begin after the retirement of Mr. Sethaput, marking a new era of monetary policy leadership for Thailand as it continues to address these complex economic challenges.
