The Bank of Thailand cut its key interest rate by a quarter point for a second consecutive meeting on Wednesday, in a move to support an underperforming economy facing uncertainty over steep US tariffs.
The Monetary Policy Committee voted 5-2 to reduce the one-day repurchase rate by 25 basis points to 1.75%, the lowest level in two years. That followed a similar reduction at the previous meeting in February. Twenty of 28 economists in a Reuters poll had predicted the key rate would be cut this week. The other eight had expected no policy change.
“It’s quite clear that the storm is coming from the trade war,” BoT Governor Sethaput Suthiwartnarueput said in a speech on Tuesday. “The need to focus on stability is high.”
In a statement released after Wednesday’s meeting, the central bank said the Thai economy is projected to expand at a slower pace than anticipated, with more downside risks due to uncertainty in major economies’ trade policies and a decline in the number of tourists.
The economy would grow by 2% at best, down from an earlier forecast of 2.5%, it said.
Southeast Asia’s second-largest economy has suffered twin blows, first from a deadly 7.7-magnitude earthquake in March, while confidence has been shaken by the prospect of 36% tariffs for exports to the US.
Prime Minister Paetongtarn Shinawatra is trying to secure negotiations with US President Donald Trump’s administration and her government is considering measures to alleviate the local impact.
The tariff shock “exacerbates Thailand’s already sluggish economic recovery post-pandemic” and risks aggravating the downward trend in its potential growth, Moody’s said in a statement.
In a sign of growing pessimism, Moody’s Ratings downgraded Thailand’s credit rating outlook to negative from stable late Tuesday, citing risks that economic and fiscal strength will weaken further. It affirmed the sovereign rating at an investment-grade Baa1.
The government complained that the downgrade was premature as trade talks with the US have not concluded. The economy is still growing and the government plans more economic stimulus measures to boost growth in the second half of the year, it said in a statement.
“With downside growth risks rising and the economy set to undershoot the BoT’s 2.5% growth projection for 2025, the case for a stronger policy response has strengthened,” said Krystal Tan, an economist at ANZ Banking Group, prior to Wednesday’s rate decision.
The central bank surprised the market with its two previous rate cuts, even as policymakers maintained they were not embarking on an all-out easing cycle. The BoT said after the February cut that the bar would be high for any additional easing since it has limited policy space with the key rate at just 2%.
The International Monetary Fund said Asian central banks have scope to lower borrowing costs to cushion their economies from the trade war, citing low and manageable inflation. The Philippines and Singapore eased monetary policy earlier this month, while analysts have started to pencil in rate cuts for Malaysia.
The skyline in the backdrop of the Bangkok Port as seen from the Mahanakhon Tower Observation deck in Bangkok. (File photo)
Growth forecast cut
The central bank now foresees economic growth of 2% this year, in a best-case scenario where US tariffs on Thai imports remain around where they are now. However, growth could be as low as 1.3% if Thailand is unable to persuade Washington to make significant cuts in the 36% rate it has threatened to impose.
In December, the BoT predicted 2025 GDP growth of 2.9%, but in February assistant governor Sakkapop Panyanukul said the central bank expected expansion of just over 2.5%, and on April 17 said it may be even lower.
Thailand estimates that 36% tariffs in the US — its largest export market — would shave off about one percentage point off its economic growth this year. The country posted a trade surplus with the US of almost $46 billion.
Thai and US officials postponed trade talks initially slated for last week, with Ms Paetongtarn saying that Washington wanted her administration to review some issues beforehand.
The prime minister has since ordered her cabinet to address the misuse of certificates of origin by foreign companies trying to dodge higher US tariffs. Thailand will also look into US concerns over currency manipulation, Finance Minister Pichai Chunhavajira said last week.
Despite the weak economic backdrop, the baht has gained over 11% against the dollar over the past year, the best performer among Asian currencies tracked by Bloomberg.
SCB Economic Intelligence Center (EIC), the research arm of Siam Commercial Bank, expects the central bank to lower its policy rate two more times this year, reaching 1.25% by the end of 2025.
That would bring the rate below the levels seen in 2018-19, when Thailand weathered an earlier US-China trade war with a less direct impact.
The research centre of CIMB Thai Bank also expects a year-end rate of 1.25% this year. If the economy weakens further, the rate could be reduced to as low as 1% by year-end, it said.