The Monetary Policy Committee (MPC) of the Bank of Thailand, led by Secretary Mr. Sakkapop Panyanukul, decided to cut the policy rate by 0.25 percentage point to 2.00% in their meeting on 26 February 2025.
Key Points
- The Monetary Policy Committee (MPC) of the Bank of Thailand has decided to cut the policy rate by 0.25 percentage point to 2.00%, effective immediately, in response to the slower-than-anticipated growth of the Thai economy and increasing downside risks.
- The Thai economy is expected to grow slower than anticipated due to structural problems in the manufacturing sector and intense competition from imported goods, especially in automotive, petrochemical, and construction materials industries, but the services sector is projected to expand.
- Headline inflation is expected to stabilize around the lower bound of the target range due to supply and structural factors, such as a downward trend in global crude oil prices and intense price competition from imported goods, while medium-term inflation expectations remain within the target range.
Bank of Thailand Makes Surprise Rate Cut
The Bank of Thailand unexpectedly cut its key interest rate by 0.25 percentage points to 2% on February 26, 2025, marking its lowest level since July 2023 This decision was made in response to slower-than-anticipated economic growth and increasing downside risks
- Reasons for the Cut: The central bank aimed to better align monetary conditions with prevailing economic trends, inflation, financial system stability, and to address emerging downside risks
- Economic Context: The Thai economy is expected to grow slower than anticipated due to structural problems in the manufacturing sector and intense competition from imported goods, particularly in the automotive, petrochemical, and construction materials industries
- Inflation Outlook: Headline inflation is expected to stabilize around the lower bound of the target range due to supply and structural factors, such as a downward trend in global crude oil prices and intense price competition from imported goods
- Monetary Policy Committee (MPC) Vote: Six of the seven-member MPC voted to lower the one-day repurchase rate by a quarter point to 2%, with one member opting to hold the rate
The decision was made to align financial conditions with the economic and inflation outlook as well as financial stability, and to better cope with increasing downside risks to the economy. One member voted to maintain the policy rate due to greater emphasis on preserving monetary policy space to deal with heightened uncertainties.
The Bank of Thailand stated that the Thai economy is expected to grow at a slower pace than previously anticipated. This is attributed to structural challenges in manufacturing and increased competition from imported goods, despite support from domestic demand and a strong tourism sector. Additionally, the economy faces elevated risks stemming from the trade policies of major global economies. Headline inflation is projected to stabilize near the lower end of the target range due to both supply-side and structural factors. Financial conditions remain tight, although loan growth and credit quality have shown signs of improvement.
The lower policy rate is consistent with the current assessment of the economic outlook and remains robust to risks going forward. The Committee will closely monitor developments in financial and economic outlook.
Source : Monetary Policy Committee’s Decision 1/2025
