Rate cut surprised markets amid low inflation fears

Bank of Thailand Governor Vitai Ratanakorn said the Monetary Policy Committee’s resolution to cut interest rates was a move that surprised the market, as the MPC was concerned that medium-term inflation could fall outside the target range in 2027.

Vitai said the MPC’s decision to cut rates came amid pressure from low inflation and an economy growing below its potential.

While he acknowledged that lowering interest rates is not a cure-all, he said it remains necessary as a tool to help support the economy, alongside accelerated targeted measures to address long-term structural problems.

Vitai, the governor of the Bank of Thailand, said at the FUTURE READY 2026 event organised by the BRANDi Institute of Systematic Transformation (BiOST) that the recent MPC meeting on February 25 was very exciting in terms of voting and monetary policy decisions.

He pointed to the “independence” of each committee member’s vote, noting that members vote one by one, without knowing the outcome in advance and without any prior discussion on how they will vote.

He said that even the three representatives from the Bank of Thailand — the governor and two deputy governors — did not talk or prepare to vote in the same direction.

As a result, the decision outcome could be considered “a surprise in terms of timing”.

He said the 4–2 vote to cut the policy interest rate by 0.25 percentage points to 1.0% reflected committee concerns that inflation remains low, and that fourth-quarter GDP, while improving somewhat, still carries high uncertainty.

Most importantly, he said Thailand’s economy is growing below its potential level of 2.7%–2.8%. This year, growth is expected at only about 1.9%–2%, plus or minus.

Such low growth means household and business income is insufficient, leading to additional borrowing and creating a cycle of accumulated debt.

Therefore, when considering the long-term inflation trend, which is declining and could slip outside the medium-term target range in 2027, the key question became when to cut rates.

He said, “If you don’t cut now and cut next quarter, it has the same effect.”

As a result, he said the rate cut is a tool that must be used to help support the economy so it can keep moving forward amid a slowdown.

However, he stressed that cutting the policy rate is not a cure-all, because it cannot resolve the country’s structural problems, such as productivity, building competitiveness, an ageing society, or inequality in access to resources.

These problems, he said, require other measures alongside monetary policy, but a rate cut is still necessary as a tool to stabilise the situation.

He cited statistical findings that a 0.25 percentage-point cut in the policy rate would boost GDP by only about 0.2%, because the current economic problems are structural and conventional financial tools do not work as fully as they did in the past.

He said targeted measures are therefore needed to help address credit access issues in parallel, so that the economy can grow sustainably over the long term.