Bangkok Slashing Rates: Growth Fears Fuel Action
Bangkok—Facing a faltering economy, the Bank of Thailand (BoT) has shifted its priorities, emphasizing economic growth over inflation concerns. This move has prompted financial analysts, including Nomura Holdings Inc., to predict more aggressive interest rate cuts in the coming months to stimulate the weakening economy.
Minutes from the BoT’s Monetary Policy Committee (MPC) February meeting reveal growing concern about Thailand’s economic prospects. The committee acknowledged a shift in the balance of risks toward weaker growth, a sentiment underscored by a surprise quarter-point rate cut in February, lowering the key interest rate to 2%. This decision, which surprised many market observers, signals the central bank’s increasing unease.
Several factors contribute to this pessimistic outlook. The MPC cited challenges in the domestic manufacturing sector, tighter financial conditions for households and businesses, and the escalating global trade war as significant headwinds. These pressures are projected to result in economic growth “significantly below expectations.”
The rate cut was not unanimous. While six MPC members voted in favor, advocating for a preemptive measure to protect the economy, one member dissented. This dissenting voice prioritized maintaining the BoT’s capacity to respond to future uncertainties, highlighting the tension between stimulating growth and preserving policy flexibility.
This shift underscores growing anxieties surrounding Southeast Asia’s second-largest economy. Even before the looming threat of US tariffs impacting Thailand’s crucial export sector, the country faced sluggish domestic growth. The central bank has revised its GDP growth forecast for this year downward, from 2.9% in December to slightly above 2.5%, clearly indicating the economic challenges ahead.
Nomura Holdings Inc. responded to the BoT’s change in stance by significantly revising its forecast. The firm now anticipates 100 basis points in rate cuts over the next year, double its previous prediction. This would bring the policy rate to 1% by the first quarter of 2026, achieved through projected 25-basis point cuts in June, October, December, and February.
“We are observing a worsening of local sentiment,” noted Nomura economist Charnon Boonnuch, citing the recent equity market downturn, persistent structural issues within the Thai economy, and limited prospects for government-led reforms.
The MPC minutes also highlight several key economic vulnerabilities. They emphasized the potential impact of escalating US tariffs on China and other high-risk countries, including Thailand, estimating a potential 0.3 to 0.5 percentage point decline in economic growth. The minutes also described an uneven recovery, with the services sector benefiting from a tourism boom and strong demand for electronic goods, while manufacturing and real estate continue to struggle. While headline inflation is expected to remain within the BoT’s target range of 1% to 3%, driven by supply-side factors, the minutes explicitly ruled out future deflation.
Interestingly, despite the February rate cut, the BoT insists this is not the beginning of an easing cycle. Some MPC members maintain that the current 2% policy rate is robust enough to withstand future shocks, provided the economy avoids unforeseen major disruptions. Furthermore, the minutes point to a decrease in long-term financial stability risks due to ongoing debt deleveraging.
Despite the BoT’s reassurances, the shift to prioritizing growth, coupled with Nomura’s revised forecasts, suggests a growing consensus that further monetary easing may be necessary. The future of Thailand’s economy remains uncertain, and the coming months will be crucial in determining the effectiveness of the BoT’s policy adjustments.
