Bank of Thailand Cuts Key Interest Rate to Counter Economic Slowdown

Thailand’s Monetary Policy Committee (MPC) has unanimously voted to cut the policy interest rate by 0.25%, lowering it to 1.50% in its fourth meeting of the year. 

The decision, effective immediately, comes amid rising concerns over a fragile economic outlook, particularly the vulnerability of small and medium-sized enterprises (SMEs) in the second half of the year.

Sakkapop Panyanukul, secretary of the MPC, announced the decision on Wednesday. He stated that while the Thai economy is expected to grow as previously forecast for 2025 and 2026, recent US tax measures are likely to worsen structural problems and hurt competitiveness.

The committee's move is aimed at creating a more "accommodative" monetary environment to help businesses adapt and to ease the financial burden on vulnerable groups.

Despite a solid performance in the first half of the year, driven by strong electronics exports and manufacturing, the MPC anticipates a slowdown in the latter half of 2025.

This is due to the direct and indirect effects of US tax policies and a decline in short-haul tourism, which is facing increased regional competition. These factors are expected to particularly impact the incomes of SMEs, employees, and freelancers.
 

Headline inflation remains low, largely because of falling fresh food prices and a decrease in global crude oil prices. This low inflation rate is seen as a mitigating factor that prevents the cost of living and business expenses from rising further. Core inflation, however, is stable, suggesting that price cuts are not widespread.

The report also highlighted persistent financial risks. Credit growth continues to shrink as credit risk rises, particularly for SMEs and low-income households. The quality of loans is deteriorating, with SME and residential loans being most affected.

While the Thai baht has strengthened against the US dollar compared to other regional currencies, and bond yields have fallen in line with economic forecasts, the committee will continue to monitor credit growth and currency movements. 

The MPC reaffirmed its commitment to supporting financial measures that reduce costs and alleviate the debt burden on vulnerable groups while maintaining its core mandate of price stability and sustainable economic growth.