Banks Follow Central Bank’s Lead on Rate Cuts
Following a decisive move by the Bank of Thailand on Wednesday to cut its benchmark policy rate to a two-year low of 1.50 percent, the country’s leading commercial banks have quickly followed suit by reducing their own lending rates. This reduction was unanimously approved by the central bank’s Monetary Policy Committee in an effort to provide support to a national economy that is showing signs of weakening, exacerbated by new US tariffs on Thai goods. Bangkok Bank, the nation’s largest lender, led the charge by matching the central bank’s 25-basis-point reduction, with state-controlled Krungthai Bank and the Government Savings Bank also announcing similar cuts. The significance of this coordinated action is notable, as it is the first time in the current easing cycle that lenders have fully passed on a central bank rate cut, a stark change from their previous behavior of only passing through an average of 43 percent of past reductions.
Supporting a Slowing Economy Amidst Global Shifts
The central bank’s decision to maintain an accommodative monetary policy is a direct response to a projected slowdown in Thailand’s economic growth, which is expected to last into early 2026. This pessimistic forecast is driven by several factors, including the impact of a 19 percent US tariff on Thai goods, which could disrupt global supply chains, as well as subdued domestic consumption and a decline in tourist arrivals. The government, led by the Pheu Thai party, has been a vocal advocate for these measures, continuously urging banks to lower borrowing costs to provide relief to small businesses and households struggling with high debt loads from the pandemic era. Finance Minister Pichai Chunhavajira also commented that the rate cut would help boost liquidity and support the value of the Thai baht, while also incentivizing banks to lend rather than hold cash with the central bank.
Market Impact and Future Monetary Policy
While the rate cuts are expected to stimulate the broader economy, they could pose a challenge to the profitability of Thailand’s major banks. According to a senior analyst at Bloomberg Intelligence, the reductions may further squeeze the net interest margins of these lenders, which are already under pressure from weak loan growth. This could make it more difficult for banks to grow their profits, with Bangkok Bank potentially facing the most significant impact. Looking ahead, the new central bank governor, Vitai Ratanakorn, who is set to take office on October 1, has already signaled his support for the rate cuts. In a public statement, he lauded Bangkok Bank’s move, stating that providing cheaper funds is an important step to help “take care” of both the business sector and the general public. His first rate meeting in his new capacity on October 8 will be closely watched for indications of the future direction of monetary policy.
