MPC cuts key policy rate to 2% amid economic slowdown

The Bank of Thailand's MPC cuts the key policy interest rate to 2% in response to slower-than-expected economic growth. The move aims to stimulate growth, manage inflation, and support financial stability amid global competition and domestic challenges.

The Bank of Thailand's Monetary Policy Committee (MPC) voted 6:1 to reduce the policy interest rate by 25 basis points, from 2.25% to 2% per annum, effective immediately.

Thai Economic Growth Slows Below Expectations

MPC Secretary-General Sakkapop Panyanukul explained that the majority of the committee observed that Thailand's economic growth had expanded at a slower rate than previously expected. This slowdown is primarily due to pressures on the industrial sector, which faces both structural issues and strong competition from abroad.He also noted that the Thai economy is grappling with challenges arising from the trade policies of major global economies, likely referring to the US government's stance on trade.

Domestic Demand and Tourism Remain Strong

Despite the slower-than-expected growth, domestic demand and a recovering tourism sector continue to drive the Thai economy. The MPC expects that the rate cut will help improve financial conditions, support economic trade, manage inflation, and ensure the stability of the financial system, especially in light of the low growth rates.Structural Issues and Global Competition

The committee acknowledged that Thailand's economy in 2024 would expand at a slower pace than anticipated due to high inventory levels, despite strong domestic demand and growth in tourism and exports.

Structural problems in the industrial sector, particularly in the automotive, petrochemical, and construction material sectors, and increased competition from cheap imported goods, pose additional challenges.

Inflation Remains Stable

The MPC noted that the inflation rate has stabilised at the lower end of the target range, thanks to falling global oil prices and lower prices of goods due to intense competition from imported products. While the committee does not anticipate deflation or continuous negative inflation, it highlighted risks tied to global oil prices and potential domestic energy price subsidies.

Financial Conditions and Loan Growth

Although financial conditions remain tight, the MPC observed signs of stabilising loan growth and credit quality. However, loans to SMEs, particularly those in industries facing structural challenges, continue to contract. Retail loan growth has slowed due to slower income recovery and elevated debt burdens. The committee believes that the rate cut will ease financial conditions without compromising long-term financial stability.

Monitoring Financial Market Developments

The MPC also expressed concern about the volatility of the baht against the US dollar, driven largely by uncertainties in the policies of major economies. The committee will closely monitor developments in financial markets and the movements of the baht.

A Focus on Sustainable Growth

The MPC's monetary policy framework is designed to maintain price stability, support sustainable economic growth, and preserve financial stability. The committee believes that the lower policy rate aligns with the current economic outlook and will help mitigate risks going forward.

The committee will continue to monitor developments in the financial and economic landscape and adapt its policies as needed.

Previous Rate Cut and Government Pressure

This latest cut follows the MPC's previous reduction on October 16, when the rate was lowered by 25 basis points to 2.25%. Earlier, the government had urged the MPC to further reduce the policy rate to stimulate economic growth.

(2025/02/26-00:00)