SCB EIC Forecasts Two Additional Policy Rate Cuts to 1.25% by Year’s End

The MPC lowered Thailand’s policy rate to 1.75% due to a slowing economy and rising trade risks. Two scenarios indicate weaker growth and subdued inflation, emphasizing the need for accommodative monetary policy amid persistent global trade uncertainties.

Policy Rate Cut and Economic Outlook

The Monetary Policy Committee (MPC) voted 5 to 2 to reduce the policy rate by 0.25 percentage points to 1.75%, with two members favoring to keep it at 2.0%. This decision reflects concerns over slowing Thai economy due to risks from U.S. trade policies, retaliations by major economies, and lower than expected foreign tourist arrivals. Headline inflation is anticipated to drop below the target range, and financial conditions remain tight. The MPC also warned that the ongoing trade war may cause long-term structural changes to global trade and supply chains, increasing economic uncertainty.

Scenario-Based Projections

Instead of a single baseline projection, the MPC presented two scenarios due to high uncertainty. The Reference Scenario assumes current U.S. tariffs, projecting Thai economic growth at 2.0% in 2025 and 1.8% in 2026, with headline inflation of 0.5% and 0.8%. The Alternative Scenario assumes partial tariff imposition and a U.S. recession, forecasting slower growth of 1.3% and 1.0%, and lower inflation at 0.2% and 0.4%. Both scenarios suggest growth will significantly fall short of earlier forecasts.

Accommodative Monetary Policy

The MPC emphasized the necessity for accommodative monetary policy to help businesses and households adapt amid global trade tensions. They avoided labeling this rate reduction as an “easing cycle,” differentiating it from sharp disruptions like the Global Financial Crisis. The committee expressed readiness to adjust rates as needed, marking a shift from maintaining a “neutral” stance, showing increased flexibility in tackling evolving economic conditions.

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