Thailand’s Central Bank Cuts Rates to Revive Economy
Bangkok—The Bank of Thailand (BoT) lowered its benchmark interest rate by 25 basis points to 2% on Wednesday. This move, approved by a 6–1 vote of the Monetary Policy Committee (MPC), aims to bolster Thailand’s sluggish economy and weaken the baht to stimulate exports. It reflects growing concerns about downside risks to the nation’s economic outlook and marks the second rate cut in four months, following a similar reduction in October.
While some analysts anticipated the cut—ten of 26 economists polled by Reuters predicted it—the majority expected the BoT to maintain the status quo at its first MPC meeting of the year. News of the rate cut boosted the Stock Exchange of Thailand index by 1.6% by midafternoon. The baht, however, remained relatively stable, trading around 33.70 to the US dollar.
The BoT’s decision highlights several key challenges facing the Thai economy. The central bank cited concerns about the industrial sector, which struggles with structural issues and intense foreign competition. Uncertainty surrounding global trade policies further pressures Thailand’s export-dependent economy. Although domestic demand and tourism provide some support, they are insufficient to offset broader economic headwinds.
The rate cut aligns with Tuesday’s call from the Thai cabinet for monetary easing to keep inflation within the 1–3% target range. The International Monetary Fund (IMF) also recently recommended a lower interest rate to reduce borrowing costs and improve debt repayment capacity. Thailand’s inflation rate remains persistently low, averaging just 0.4% in 2024—the lowest in four years. January’s inflation was 1.3%, with the Ministry of Commerce projecting an average of 0.8% for 2025, reflecting a slower economic recovery than regional neighbors.
This cautious outlook is supported by recent economic data. Thailand’s economy expanded by only 2.5% in 2024, falling short of the 2.9% consensus forecast and lagging significantly behind neighboring countries such as Indonesia. The BoT attributes the low inflation to declining oil prices, increased competition from imported goods (especially from China), and domestic energy subsidies. While acknowledging potential downside risks, the central bank maintains that current low inflation benefits consumers and businesses by reducing living and operating costs and does not necessarily indicate deflation.
Further complicating the situation, Thailand’s financial conditions remain tight. While credit expansion and quality show nascent signs of stabilization, small and medium-sized enterprise (SME) loans, particularly in structurally challenged sectors, continue to contract. Consumer credit growth has also declined, mainly due to persistently high household debt, hovering around 89% of GDP—one of the highest levels in Asia, compared to a more sustainable target of around 70%. The BoT believes the rate cut will alleviate financial burdens without compromising long-term financial stability. The effectiveness of this measure in stimulating economic growth and navigating complex internal and external pressures remains to be seen.
