PUBLISHED : 21 Mar 2025 at 09:19
The Bank of Thailand is facing increasing pressure to implement interest rate cuts as signs of a struggling economy become more apparent. Analysts predict that the central bank may need to initiate one of the most aggressive easing cycles in Southeast Asia, with potential rate cuts reaching up to 100 basis points over the next year.
According to forecasts, Bank of America anticipates a reduction of 75 basis points by 2026. Thailand’s slow recovery from the pandemic, coupled with vulnerability to global trade protectionism, is creating urgency for the central bank, which has historically resisted rate reductions.
As the tourism sector fades, the economic challenges intensify, including ongoing issues like a weak manufacturing sector, high household debt, and sluggish consumer spending, contributing to sustained growth below 2% over the last decade.
Most economists predict that the next rate cut will occur in June, although some anticipate action could be taken as early as next month. The Bank of Thailand has recently shifted its approach with unexpected rate cuts, suggesting a potential shift towards a more accommodating monetary policy.
Market participants are already pricing in a dovish outlook, with the baht showing resilience among Asian currencies. However, recent meeting minutes indicate growing concerns within the central bank regarding the economic outlook.
Impact of Trade Tensions
The ongoing trade war, particularly US tariffs, poses a substantial threat to Thailand’s export sector and could lead to increased competition from China’s lower-cost goods. The central bank estimates that the trade conflict could decrease GDP growth by up to half a percentage point this year.
Domestically, the enduring impacts of the pandemic persist, with households and small businesses heavily burdened by debt. Limited government cash handouts have failed to stimulate consumer spending significantly, leading to tougher lending conditions.
In response, the Thai government is pursuing new economic measures. The central bank recently announced more relaxed mortgage rules while the Finance Ministry is addressing non-performing loans. However, there is a growing consensus that a reduction in rates, ideally down to 1%, could provide a much broader economic benefit.
Despite efforts to boost consumption, structural constraints on growth remain a concern. Analysts suggest that further rate cuts from the Bank of Thailand could provide needed relief, particularly if financial conditions are perceived as tightening.
