MPC cuts policy rate to 1.75% amid global slowdown concerns

The Bank of Thailand’s Monetary Policy Committee (MPC) has voted to lower the policy interest rate by 25 basis points, from 2% to 1.75% per annum, in response to growing concerns over an economic slowdown fuelled by the ongoing US trade wars.

MPC Votes 5:2 in Favour of Immediate Rate Cut

MPC secretary-general Sakkapop Panyanukul announced that the committee voted 5:2 in favour of cutting the policy rate, with the decision taking immediate effect.

This marks the second rate cut this year. On 26 February, the MPC voted 6:1 to reduce the policy rate from 2.25% to 2%. That move followed a previous cut of 25 basis points on 16 October last year, which brought the rate down from 2.5% to 2.25%.

Global Trade Tensions Prompt Policy Shift

Sakkapop explained that the MPC assessed the US trade policies and retaliatory tariffs as major disruptors to the global economic, financial, and trade landscape. The committee believes these changes will cause a prolonged global slowdown, leading to a reduction in global manufacturing efficiency.

He said the MPC anticipates the volatile global situation will negatively impact Thailand’s economy, with effects including a decline in exports and a drop in foreign tourist arrivals.

Inflation Below Target, Financial Conditions Tight

The MPC also noted that Thailand’s inflation rate remains below the target range, primarily due to weakening domestic demand. Additionally, financial conditions remain tight, adding to concerns about the economic outlook.

All of these factors influenced the majority of the MPC to support a 25-basis-point rate cut as a measure to cushion the economy against external risks.

Minority Wanted to Maintain Policy Space

Two MPC members dissented, preferring to maintain the policy rate at 2%, citing the importance of preserving policy space in the event of further economic shocks.

Outlook: Slowdown Expected in Second Half of the Year

Sakkapop concluded that the MPC expects the impact of global economic risks—especially from trade disruptions and reduced foreign arrivals—to become evident in the second half of the year.

Economic Growth Scenarios in 2025

The MPC assesses Thailand’s economic and inflation outlook under multiple scenarios. If trade negotiations are prolonged and U.S. tariffs remain at current levels (reference scenario: lower tariffs), the Thai economy is projected to grow by approximately 2 per cent in 2025.

In contrast, if trade tensions escalate and U.S. tariffs increase further (alternative scenario: higher tariffs), growth could slow to around 1.3 per cent. Actual outcomes will depend on the policy responses of major global economies.

Close monitoring of global trade developments and their implications for Thailand’s economic performance remains essential. Mitigating trade shock impacts will require coordinated policy responses and efforts to enhance private sector competitiveness.

Inflation Outlook and Price Stability

Headline inflation is expected to fall below the target range, driven by lower global crude oil prices and government subsidies that ease living costs and business expenses.

Meanwhile, core inflation is projected to remain stable, and medium-term inflation expectations are well anchored within the target range. Nonetheless, rising protectionism and evolving global supply chains pose potential risks to Thailand’s future inflation trajectory.

Financial Conditions and Credit Quality

Thailand’s overall financial conditions remain tight, with a continued slowdown in loan growth and a decline in credit quality—especially in housing loans and business loans facing structural challenges.

As global trade policies evolve, they could place additional strain on the financial health of businesses and households, raising the risk of adverse macro-financial linkages that must be closely observed.

Market Volatility and Currency Movements

Volatility in global financial markets has risen, reflecting uncertainty around trade policy decisions in major economies. This, in turn, has contributed to greater fluctuations in the Thai financial markets.

Despite these pressures, the overall functioning of Thailand’s financial system remains stable. The Committee emphasises the need for continued monitoring of international financial developments and movements in the Thai baht.

Commitment to Monetary Policy Goals

Thailand’s monetary policy framework continues to prioritise price stability, sustainable economic growth, and financial system resilience.

Given the high degree of uncertainty in the economic outlook, the MPC will adjust monetary policy as needed, aligning its stance with emerging economic conditions, inflation trends, and associated risks.