The Bank of Thailand's Monetary Policy Committee (MPC) unexpectedly lowered its policy rate for the first time in a year.
The cut of 25 basis points is seen as an attempt to gain economic traction amid weakening growth prospects.
The committee voted four to three to lower the benchmark interest rate to 1.75% from 2% on grounds that easing monetary policy should lend greater support to bolstering lacklustre economic conditions and sustaining both consumer and private sector confidence.
The rate cut came after the MPC estimated this year's growth would not reach its 4% forecast.
The Bank of Thailand is now one of more than a dozen central banks easing monetary policy to stimulate their economies this year as inflationary pressure remains in check due to the oil price slide.
The MPC believed Thailand's economic recovery had been slower than expected, headline inflation would remain low in the near future and fiscal stimulus would take time to bear results, said Mathee Supapongse, the MPC's secretary and an assistant central bank governor.
"The economy is projected to recover more slowly than formerly assessed. Exports are expected to recover at a rate close to the previous projection but with higher downside risks from a slowdown in trading partners' economies," the central bank said in a statement.
The dissenting members adjudged the rate was sufficiently conducive to support economic recovery and that a monetary policy cut should be made only when really necessary.
"Overall financial stability remains sound, but further monitoring must be done on risks accumulated from a 'search for yields' behaviour of local citizens under prolonged periods of low interest rates," Mr Mathee said.
The SET index erased its early losses suddenly after the market opened in the afternoon session, rising 0.84% or 12.8 points to close at 1,543.84 Wednesday in active turnover of 53.8 billion baht. Blue-chip banks led the gain on expectations of higher net interest margins following the rate cut.
Thailand's policy interest rate is lower than its neighbours except for Singapore, whose monetary policy is based on foreign exchange mechanisms as opposed to interest rates, Mr Mathee added.
Bangkok Bank executive chairman Kosit Panpiemras said the rate cut would only maintain economic momentum, not help to drive growth.
HSBC economist Nalin Chutchotitham said: "Today's decision further highlights downside risks to economic growth, and it's possible the central bank will maintain the policy rate at 1.75% for longer than expected to ensure stronger growth."