The International Monetary Fund (IMF) backs the Bank of Thailand cutting interest rates to stimulate inflation and increase the capacity of borrowers to repay debt.
In its 2024 Article IV Consultation with Thailand, the IMF welcomed the regulator's decision to lower its policy rate in October 2024.
The global lender recommends a further rate reduction to support inflation and improve borrowers' debt-servicing capacity, with minimal risk of increased leverage amid tight lending conditions.
In October 2024, the central bank's Monetary Policy Committee (MPC) unexpectedly reduced its benchmark policy rate by 25 basis points to 2.25%, its first rate cut in four years. The committee then maintained the rate at its December meeting.
The MPC is scheduled to hold its first meeting of 2025 on Feb 26.
Meanwhile, Prime Minister Paetongtarn Shinawatra urged the central bank to cut interest rates, arguing a reduction would help alleviate the public's financial burden.
Given an uncertain economic outlook, the IMF advises authorities to remain prepared to adjust their monetary policy stance in a data- and outlook-dependent manner.
The fund said the central bank's independence and clear communication of policy moves is key to maintaining the credibility and effectiveness of monetary policy in anchoring inflation expectations.
The IMF said while Thailand's economic recovery is underway, it remains relatively slow and uneven.
Economic activity in 2024 recorded modest growth, driven by private consumption and a rebound in tourism-related sectors. However, delayed budget implementation slowed the pace of public investment.
"The slow recovery, compared with Southeast Asian peers, is rooted in Thailand's longstanding structural weaknesses, while emerging external and domestic headwinds have contributed to subdued inflation. The outlook remains highly uncertain with significant downside risks," the IMF stated.
The global lender said a gradual cyclical recovery is expected to continue, with real GDP projected to grow by 2.7% in 2024 and 2.9% in 2025.
Growth is supported by an expansionary fiscal stance in the 2025 budget, which includes additional cash transfers amounting to 1 percentage point of GDP and a rebound in public investment.
The tourism sector and private consumption, helped by government cash transfers, are also expected to contribute to economic expansion.
As economic growth strengthens, inflation is anticipated to rise but remain within the lower half of the target range in 2025. With economic slack diminishing, the focus should shift towards rebuilding fiscal buffers, the IMF advised.
The fund said a less expansionary fiscal stance than outlined in the 2025 budget could still support economic recovery while preserving policy flexibility.
Alternatively, reallocating a portion of the planned cash transfers towards productivity-enhancing investments or social protection measures could foster stronger, more inclusive growth, while helping to reduce the public debt-to-GDP ratio, noted the IMF.
Starting in fiscal 2026, a revenue-based medium-term fiscal consolidation will be necessary to lower public debt and rebuild fiscal reserves, said the global lender.
