The Bank of Thailand cut its key interest rate and signalled it will remain accommodative as higher US tariffs risk setting off a prolonged period of economic weakness.
The central bank’s Monetary Policy Committee voted unanimously Wednesday to cut the one-day repurchase rate by 25 basis points to 1.5%, as predicted by 14 of 23 economists surveyed by Bloomberg. The rest forecast no change.
The BOT has now delivered a total of 100 basis points in rate cuts in an easing cycle that began in October. US tariffs are the latest of a series of challenges for the Southeast Asian nation this year, including violent border clashes with Cambodia and political uncertainty after the suspension of the prime minister.
“US trade policies will exacerbate structural problems and weaken competitiveness,” the committee said in a statement. “Monetary policy should be accommodative going forward to support the economy. At the same time, it is important to ensure macro-financial stability, while taking into account the limited policy space.”
The baht extended an earlier gain, strengthening 0.5% to 32.29 per dollar, while the yield on policy-sensitive two-year notes erased an earlier gain to trade little changed at 1.20%. Thailand’s benchmark stock index rose as much as 1.7%, poised for its highest close since Feb 13.
While the 19% levy on Thai exports to the US is less than initially threatened, the economy is already hamstrung by negative inflation prints and Southeast Asia’s highest level of household debt.
Economic growth is set to weaken from the first half of 2025 — when export orders were boosted by front-loading ahead of Trump’s tariffs — on the new US trade barriers, subdued domestic consumption and a decline in tourist arrivals, the BOT said. The impact of Trump’s transshipment levies needs to be monitored, it added.
The slowdown will likely stretch from the second half of this year until early 2026, BOT assistant governor Sakkapop Panyanukul said at a briefing after the decision. The central bank will revise its forecasts for tourist arrivals at its next meeting, he said, adding that economy this year and next is projected to grow “close to” its previous assessment.
Policymakers in June raised their forecast for 2025 economic growth to 2.3%, a slight improvement from the range of 1.3% to about 2% set in April. The upward revision was based on the assumption of an 18% tariff on US shipments, which is close to the announced rate.
The meeting on Wednesday was the last to be presided by governor Sethaput Suthiwartnarueput, who will complete his five-year term on Sept 30. There were only six committee members at the meeting, as one has resigned, with a replacement to be in position next month.
Newly appointed chief Vitai Ratanakorn, a long-time banker and advocate of looser monetary policy, will chair BOT’s next rate decision on Oct 8.
Despite the BOT’s accommodative stance, Sakkapop reiterated that policymakers will decide “carefully” on the timing of additional cuts. Easing could also become less effective given the already low level of the key rate, he said.
“If there is a big shock, then we can do more,” Sakkapop said. The BOT took the key rate as low as 0.5% during the pandemic, but the situation now is not as bad as it was during Covid, he said.
“The cautiously dovish tone suggests further easing as a possibility,” said Wee Khoon Chong, senior Apac market strategist at BNY in Hong Kong. “For now, our view is for BOT to keep rate unchanged for at the next meeting and reassess the full impact of tariffs.”
Source: theedgemalaysia