The Bank of Thailand cut its key interest rate by a quarter point on Wednesday amid government calls for further easing to support the economy and weaken the baht to boost exports.
The Monetary Policy Committee voted 6-1 to reduce the one-day repurchase rate to 2.00% “to address clearer downside risks” to the economy, the central bank said in a statement.
Ten of 26 economists surveyed earlier by Reuters had predicted a rate cut this week. The rest had expected no change at the first MPC meeting of the year.
Thai shares jumped on the news, with the Stock Exchange of Thailand index up 1.6% from the previous day at midafternoon. The baht was little changed at around 33.70 to the US dollar.
The central bank left rates unchanged at its previous meeting in December, which followed an unexpected quarter-point cut in October.
“The Thai economy is expected to expand at a slower pace than previously estimated due to the industrial sector being pressured by structural problems and competition from foreign products, as well as higher risks from trade policies of major economies, even though the economy is supported by domestic demand and tourism,” it said in Wednesday’s statement.
The decision followed a call on Tuesday by the cabinet for a rate reduction to help ensure inflation stays within the targeted range of 1-3%.
The International Monetary Fund also said last week that a lower interest rate was needed to reduce borrowing costs and improve the capacity of borrowers to repay debts.
Thailand’s headline inflation rate has been persistently low for an extended period, with the rate averaging 0.4% last year, the lowest in four years.
The inflation rate in January was 1.3%. The Ministry of Commerce has forecast inflation to average 0.8% this year as the Thai economy continues to recover more slowly than others in the region.
Data released last week showed that the economy grew just 2.5% in 2024, below the consensus forecast of 2.9% and at half the pace of neighbouring Indonesia.
The central bank said inflation remained near the low end of the target range due to supply-side factors. These include oil prices that have been falling, as well as structural factors such as high price competition from imported products, mainly Chinese.
“An inflation rate that remains at such a level does not indicate a sign of deflation or a continued negative inflation rate, and it also helps alleviate the cost of living and operating costs,” it said.
“However, the inflation rate is subject to downside risks from the global crude oil price trend and domestic energy subsidies.”
The BoT also observed that financial conditions remained tight. “Although overall credit expansion and quality have begun to show signs of stabilisation, SME loans, especially in industries facing structural problems, continued to contract,” it said.
Consumer credit expansion has mostly declined, it said, because household debt remains stubbornly high, at around 89% of gross domestic product, one of the highest levels in Asia. Economists say a rate of around 70% would be appropriate.
“The committee viewed that this interest rate cut would help reduce [financial burdens] without affecting risks to financial stability in the long term,” it said.
