BANGKOK — Thailand’s central bank cut its benchmark interest rate by 0.25 percentage points to 1.50% on Wednesday in a unanimous decision aimed at channeling more liquidity into the economy as growth momentum shows signs of weakening in the second half of the year.
The Thai stock market responded positively to the decision, closing up 18.36 points or 1.46% as investors welcomed the monetary stimulus designed to ease financial pressures on businesses and consumers.
Govt Welcomes BOT Rate Cut
Deputy Prime Minister and Finance Minister Pichai Chunhavajira described this rate reduction as a positive sign, reflecting the MPC’s consensus on the current economic situation.
The interest rate cut will help channel the substantial liquidity available in the country into the economic system, rather than being parked with central financial institutions. This measure will help alleviate tight liquidity conditions in the market and serve as a starting point for addressing other economic problems going forward.
The Finance Ministry has an additional 3-4 initiatives planned for close discussion with the Bank of Thailand to improve liquidity flow, which is expected to impact the baht exchange rate with a tendency toward depreciation – a positive development for exporters.
“This direction will help significantly. If we use more money, the baht will follow suit. Exporters will certainly be pleased,” the Finance Minister said.
Rate Cut Expected to Weaken Baht
MPC Secretary Sakkapop Panyanukul stated that Thailand’s economic outlook isn’t dire, but the rate cut ensures that financial burdens won’t overly burden citizens and businesses. The current rate is adequate for economic conditions, though future consideration will be needed if the economy faces more severe crises.
“Preserving monetary policy ammunition is important because the lowest interest rate reached 0.5% during COVID-19. Currently, we haven’t reached that point, as reflected by GDP contracting over 6% during COVID. So if asked whether rates can be cut further, they can still be reduced like during the previous COVID crisis,” Sakkapop said.
Regarding baht trends, the MPC Secretary acknowledged that the baht has strengthened more than countries with similar US tax exposure, creating additional pressure due to rising gold prices and increased foreign fund flows into the stock market. Discussions are ongoing with relevant agencies including the Finance Ministry about additional measures.
Effects from US Tax Adjustments
Sakkapop summarized Thailand’s economic situation: the first half showed good growth from increased exports and manufacturing, but second-half economic momentum will begin to fade due to US tax adjustments expected to have longer-lasting effects than the first half.
Although Thailand receives tax rates that aren’t competitively disadvantageous, the historically high US tax increases impact the overall picture, along with declining foreign tourists affecting employment and tourism-related businesses, weakened private consumption, and banking sector caution in lending.
“It’s time for businesses to enhance their competitive capabilities because monetary policy won’t be the complete answer to structural problems,” Sakkapop said.
Credit Caution Dampens Recovery
The Bank of Thailand has measures to help businesses adapt and compete in the new global context, including debt restructuring for debtor groups, which must be expanded. While recession concerns aren’t significant, low economic growth is expected in the second half, with full-year 2025 GDP growth forecast at 2.3%.
Regarding the three previous rate cuts, 43% of the policy has been transmitted to commercial banks with corresponding rate adjustments. However, the previous rate cut had less policy transmission than the first two cuts, though this reduction is expected to have greater policy transmission due to available room for improvement.
BOT Expands Debt Relief Programs
Policy transmission isn’t just about rate cuts – the Bank of Thailand has other debtor assistance measures, particularly emphasizing debt restructuring and burden reduction for vulnerable groups, serving as complementary tools to existing Bank of Thailand measures.
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