IMF Urges Thailand Rate Cuts for Faster Economic Recovery
The International Monetary Fund (IMF) endorsed the Bank of Thailand’s (BoT) recent interest rate cuts, advocating for further reductions to stimulate inflation and ease borrowers' debt burden. This endorsement stems from the IMF’s 2024 Article IV Consultation with Thailand, a routine surveillance exercise. The IMF’s support significantly influences the ongoing debate surrounding Thailand’s monetary policy, particularly as the nation navigates a complex economic environment.
In October 2024, the BoT unexpectedly slashed its benchmark policy rate by 25 basis points to 2.25%, its first rate cut in four years. A subsequent December hold left observers anticipating the Monetary Policy Committee’s (MPC) next move at its February 26th meeting. The IMF welcomed the October reduction and recommended further easing, citing minimal risk of increased leverage given currently tight lending conditions. This recommendation aligns with Prime Minister Paetongtarn Shinawatra’s calls for rate reductions to alleviate public financial strain.
Thailand’s uneven economic recovery forms the backdrop for this discussion. While 2024 saw modest growth driven by private consumption and a tourism resurgence, public investment lagged due to delayed budget execution. This slower recovery, compared to other Southeast Asian nations, is attributed to persistent structural weaknesses, coupled with emerging domestic and external challenges that suppressed inflation. The IMF acknowledges the inherent economic uncertainty, highlighting significant downside risks.
Despite these uncertainties, the IMF projects continued, albeit gradual, cyclical recovery, forecasting real GDP growth of 2.7% in 2024 and 2.9% in 2025. This projection rests on the 2025 budget’s expansionary fiscal stance, including supplementary cash transfers equivalent to 1% of GDP and a rebound in public investment. Continued tourism sector growth, alongside private consumption boosted by government cash handouts, is also expected to contribute to economic expansion.
As the economy strengthens, the IMF anticipates rising inflation, though remaining within the lower half of the target range in 2025. The Fund suggests a shift towards replenishing fiscal buffers as economic slack diminishes. While supporting the 2025 budget’s expansionary approach, the IMF suggests a slightly less aggressive stance could still support recovery while maintaining policy flexibility. Alternatively, reallocating some planned cash transfers towards productivity-enhancing investments or strengthening social safety nets could promote stronger, more inclusive growth and simultaneously reduce the public debt-to-GDP ratio. Looking ahead, the IMF recommends a revenue-based medium-term fiscal consolidation strategy starting in fiscal 2026 to lower public debt and rebuild fiscal reserves.
The IMF’s endorsement of further interest rate cuts includes a caveat: the BoT must remain agile, adjusting monetary policy based on evolving data and economic forecasts. The Fund emphasizes the importance of the central bank’s independence and transparent communication of policy decisions to maintain credibility and effectively anchor inflation expectations. This balance between supporting growth, managing inflation, and ensuring long-term fiscal sustainability is crucial for navigating current economic uncertainties and securing Thailand’s continued recovery.
