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Thailand’s Central Bank Holds Steady on Interest Rates Amidst Slowing Growth & Tariff Concerns
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Thailand’s Monetary Policy Committee (MPC) has decided to maintain its policy rate at 1.50%, signaling a continued commitment to an accommodative monetary stance despite a weakening economic outlook and limited versatility for further easing. The decision,reached with a 5-2 vote,comes as the Thai economy grapples with the impact of global tariffs,slowing domestic demand,and challenges for small and medium-sized enterprises (SMEs).
The MPC acknowledged that economic growth has decelerated, prompting a downward revision of its inflation forecasts. While export growth has seen a notable uptick, the positive impact is being offset by a corresponding surge in imports.
Economic Slowdown & Revised Forecasts
The Thai economy is anticipated to experience further deceleration in the latter half of 2025, largely due to the escalating effects of U.S.tariff measures on the export sector. Industrial production has also been hampered by temporary disruptions. Consequently, the MPC now projects Thai GDP growth to fall below 2% year-on-year during that period.
despite these headwinds, there are pockets of positive news. The MPC substantially revised its export growth forecast for the current year to 10% year-on-year, up from 4.0% in June, aligning with recent data. though, this boost is tempered by a substantial increase in import growth, now projected at 10.2% year-on-year, compared to 5.3% previously.
Tourism & Domestic Demand Weakness
The tourism sector and domestic demand are both showing signs of slowing. The MPC has lowered its projection for foreign tourist arrivals in 2025 to 33 million,down from 35 million projected in June. Domestic demand growth is also expected to ease, falling from a previous forecast of 2.1% year-on-year to 1.7% year-on-year. the committee anticipates gradual betterment in both areas, factoring in the government’s planned economic stimulus measures scheduled for implementation in the fourth quarter.
The overall economic outlook remains largely unchanged from the june meeting, with GDP growth projections slightly revised down to 2.2% for 2025 and 1.6% for 2026. .
Inflation Remains Subdued
The MPC has lowered its inflation forecast to 0% for the current year, with expectations for inflation to remain below the target range through 2026. Headline inflation is projected to decline to 0.0% in 2025 and rise modestly to 0.5% in 2026, driven by lower energy and raw food prices. Despite these concerns, the committee maintains that Thailand is not currently experiencing deflation, citing stable core inflation, consistent product prices, and anchored long-term inflation expectations.
Financial Conditions & SME Challenges
Financial conditions in Thailand remain tight, with overall credit contracting slightly amid weak demand. SMEs are facing particularly acute challenges, experiencing loan contraction, deteriorating credit quality, and a rise in non-performing loans. Export-oriented SMEs are especially vulnerable, impacted by the strong baht and squeezed profit margins, exacerbated by a lack of currency hedging.
“Maintaining an accommodative monetary policy while carefully managing timing and effectiveness under limited space and heightened uncertainties is crucial,” a senior official stated.
The dissenting voices on the MPC advocated for a more aggressive approach,favoring a reduction in the policy rate to 1.25%. However, the majority believes that careful timing is paramount given the limited room for further monetary easing.
The MPC’s decision reflects a delicate balancing act as Thailand navigates a complex global economic landscape and seeks to support domestic growth while managing inflationary pressures and financial stability.
Did you know?-Thailand’s MPC last cut its policy rate in May 2020, bringing it to the current 1.50% level, in response to the COVID-19 pandemic.
Pro tip:-The baht
