Bank of Thailand Holds Key Rate at 1.75% Despite Economic Slowdown Concerns

Thailand's Monetary Policy Committee (MPC) voted 6-1 to maintain the benchmark interest rate at 1.75 per cent per annum on Wednesday, despite projections of economic deceleration in the latter half of 2025.

Speaking at a press conference following the committee meeting on Wednesday, MPC Secretary Sakkapop Panyanukul announced that whilst the Thai economy had expanded more robustly than anticipated in the first half of 2025, supported by manufacturing production and front-loaded exports, significant headwinds lay ahead.

The committee cited mounting risks to merchandise exports stemming from US trade policies and geopolitical tensions as primary concerns for the economic outlook. 

Under the assumption that reciprocal US tariffs would be applied to Thailand at 18 per cent—half the rate announced on 2 April 2025—and 10 per cent for other countries, the Thai economy is projected to grow by 2.3 per cent in 2025 and 1.7 per cent in 2026.

"The committee deems that monetary policy should be accommodative to support the economy looking forward," Sakkapop stated. "However, most committee members voted to maintain the policy rate at this meeting, giving importance to the timing and effectiveness of monetary policy amid high uncertainties and limited policy space."
 

The sole dissenting vote favoured a 0.25 percentage point cut to alleviate interest rate burdens and support those affected by the weakening economic outlook.

The committee highlighted that export growth, particularly in electronics and goods front-loaded to the US market, had bolstered manufacturing and related service sectors in the first quarter. 

However, this momentum is expected to wane as merchandise exports face increasing pressure from US tariffs and private consumption moderates in line with weakening income and consumer confidence.

Tourism, whilst contributing to economic growth, faces revised projections with lower anticipated visitor arrivals, though tourism receipts continue expanding due to higher per-visitor spending.

Inflationary pressures remain subdued, with headline inflation projected at 0.5 per cent in 2025 and 0.8 per cent in 2026, primarily driven by energy and fresh food price dynamics. Core inflation is forecast to expand by 1.0 per cent in 2025 and 0.9 per cent in 2026.
 

Credit conditions present additional challenges, with overall credit growth remaining negative as financial institutions exercise caution, particularly regarding small and medium enterprises (SMEs) and low-income households.

Credit quality has continued to deteriorate, especially in SME and housing loan portfolios.

The baht has appreciated slightly against the US dollar, driven by external factors and moving in line with regional currencies.

Looking ahead, the committee emphasised its readiness to adjust monetary policy should economic conditions warrant, whilst maintaining its commitment to price stability, sustainable growth, and financial system stability.

The MPC will continue monitoring credit growth and quality developments, which could have significant implications for economic activity.