The Bank of Thailand’s Monetary Policy Committee (MPC) has voted to cut its key one-day repurchase rate by 25 basis points to 2.00 percent, effective immediately, according to the minutes of its meeting held on 21 and 26 February 2025. This surprise move, announced in minutes published on Wednesday, 19 March 2025, follows a previous hold in December 2024 and a similar rate reduction in October 2024.
The MPC’s decision, which saw a 6-1 vote in favor of the cut, reflects growing concerns over a weaker-than-expected economic outlook for Thailand. The minutes reveal that the committee has revised its growth projection for 2025 to slightly above 2.5 percent, down from an earlier assessment, citing persistent structural challenges and heightened competition in the manufacturing sector, as well as the impact of implemented U.S. trade policies. The bank had projected economic growth at 2.9% in December.
The committee noted that the economic recovery has become more uneven across different sectors. While the service sector—particularly tourism-related services—and merchandise exports of electronic goods continue to expand robustly, manufacturing sectors facing structural issues, notably the automotive-related and real estate industries, have shown further deterioration. The automotive sector faces competition from electric vehicles, weak domestic purchasing power, and cautious lending. Meanwhile, the real estate market is slowing due to weakened purchasing power and more cautious lending by financial institutions amid rising default rates among lower- to middle-income groups.
The MPC expressed concern that economic growth could be lower than previously anticipated, with higher risks going forward. These risks stem from prolonged structural issues in manufacturing, the potential impact of trade policies from major economies, and tightening financial conditions for certain businesses and households. Specifically, the minutes highlight the risk of additional U.S. trade measures, including potential tariff increases on goods from countries with sustained trade surpluses with the U.S., such as Thailand. Such measures could reduce Thai exports to the U.S. and intermediate goods exports to China, while also intensifying competition from Chinese oversupply. The potential impact of a hypothetical scenario involving increased U.S. tariffs on Chinese goods and a 10 percent tariff on goods from high-risk countries like Thailand could reduce Thai economic growth by approximately 0.3 to 0.5 percentage points.
The majority of the committee members agreed that lowering the policy rate would help ease tight financial conditions, evidenced by slower credit growth in financial institutions and bond markets. They also believed the lower rate would support the economy by alleviating debt burdens and facilitating business adjustments, aligning with targeted measures. The committee considered the new rate of 2.00 percent as still providing sufficient policy space to address potential future scenarios.
However, one committee member voted to maintain the policy rate at 2.25 percent, emphasizing the need to preserve policy space to address heightened future uncertainties, given Thailand’s relatively limited policy space compared to other nations. This member argued that monetary policy is primarily a tool to manage demand and has limited effectiveness in addressing the structural issues currently facing the Thai economy.
The committee consensus was that the slowdown in the Thai economy is primarily driven by structural factors, necessitating supply-side restructuring policies to enhance production efficiency and industry competitiveness. These policies should include new investments and government support to facilitate the adjustment process.
Despite the rate cut, central bank chief Sethaput Suthiwartnarueput stated last week that the central bank did not intend to move rates frequently and that the current level is considered robust for the present economic outlook. The central bank has indicated that the threshold for further rate cuts would be high, as the current rate aligns with the existing economic forecast.
Thailand’s household debt stood at a high level of 89.0 percent of GDP at the end of September 2024, which the government views as a significant constraint on consumption and growth. The government has a growth target of 3% for this year and hopes to exceed this through stimulus measures valued at $4.4 billion. Last year, Southeast Asia’s second-largest economy grew by 2.5%, lagging behind its regional peers.GD
The Bank of Thailand’s next monetary policy review is scheduled for April 30.
