Low inflation provides ample room for the Bank of Thailand to slash interest rates at least two more times this year to deal with the impacts of the trade war, with the next rate cut expected in the third quarter, according to analysts.
The consumer price index fell by 0.22% in April, the first contraction in 13 months, according to data released by the Commerce Ministry on Tuesday. Analysts had predicted a 0.1% decline, according to KGI Securities (Thailand).
Burin Adulwattana, managing director and chief economist at Kasikorn Research Center (K-Research), said the central bank is projected to trim the rate "at least one more time" this year, following a cut of 25 basis points (bps) last month.
Aiming to revitalise an underperforming economy, the regulator on April 30 slashed its key interest rate by 25 bps for a second consecutive meeting this year. The latest cut brought the Thai policy rate to 1.75%, the lowest level in two years.
"The US tariffs would significantly impact Thai exports as tourism has begun to slow down," said Mr Burin.
K-Research expects Thai exports to moderate this quarter, despite US President Donald Trump's 90-day tariff halt, due to earlier front-loaded imports. Outbound shipments are likely to contract in the second half of the year due to potential US tariff hikes, noted the research unit.
"The decline in tourist arrivals could prompt the central bank to trim the rate further, with at least one more reduction this year," he said.
Krungsri Securities (KSS) expects at least two more rate cuts this year based on Thailand's low inflation combined with economic risks from trade tariffs.
"We assess Thailand has not yet reached deflation," the brokerage said in a research note.
KSS economists expect Thai inflation to trend lower due to the potential inflow of certain goods as a result of the US reciprocal tariff, which could lead to lower inflation, staying below the central bank's target range.
Kuala Lumpur-based Maybank lowered Thailand's 2025 headline and core inflation outlooks to 0.5% and 0.8% respectively, from 1% for both, amid external shocks, tepid domestic demand and a surfeit of manufacturing supply.
The bank also shaved its headline and core inflation forecasts for next year to 0.8% and 1%, from 1.1% for both. Headline inflation is expected to average -0.1% in the second quarter and 0.5% in the second half of 2025, as the high base effects of energy prices subside.
"With prior export frontloading, first-quarter GDP growth is likely to register 2.7%. The Bank of Thailand is expected to pause in June, as it assesses the economic impact from Trump's tariffs, before cutting rates by 25 bps in the third quarter," Maybank noted.