Thailand Cuts Rate as Currency Surge Adds to Growth Headwind
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The Bank of Thailand cut its key interest rate to the lowest since 2022 to bolster a fragile economy weighed down by a stubbornly strong currency and renewed political uncertainty, while leaving the door open for more easing.Author of the article:You can save this article by registering for free here. Or sign-in if you have an account.(Bloomberg) — The Bank of Thailand cut its key interest rate to the lowest since 2022 to bolster a fragile economy weighed down by a stubbornly strong currency and renewed political uncertainty, while leaving the door open for more easing.Subscribe now to read the latest news in your city and across Canada.Subscribe now to read the latest news in your city and across Canada.Create an account or sign in to continue with your reading experience.Create an account or sign in to continue with your reading experience.The central bank’s Monetary Policy Committee voted unanimously Wednesday to cut the one-day repurchase rate by 25 basis points to 1.25%, the fifth cut in 14 months. The move was predicted by 23 of 24 economists surveyed by Bloomberg. Only one forecast no change. “Given apparent economic slowdown as well as heightened risks, monetary policy can be more accommodative to ensure that financial conditions support economic recovery and alleviate debt burden of vulnerable groups,” the committee said in a statement.Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againInterested in more newsletters? Browse here.Further monetary easing may be critical for Southeast Asia’s second-biggest economy, which has absorbed a string of shocks — including the impact of US reciprocal tariffs, severe flooding in the southern provinces and deadly border clashes with Cambodia. The cut may also help ease pressure from the baht’s rapid gains this month, which have weighed on exports and tourism.For the BOT to cut rate again, domestic economic conditions have to be worse than expected or deflation risks escalate further, Assistant Governor Sakkapop Panyanukul told a briefing. “We are not hawkish. We are quite neutral now.” The baht pared gains of about 0.3% after the rate cut, and was little changed at 31.51 to a US dollar by 3:25 p.m. local time. The benchmark SET stock index, the worst-performer in Asia this year, was little changed after the rate cut.The currency climbed to its strongest in more than four years ahead of the decision and has appreciated more than 8% this year, Asia’s second-best performer, according to Bloomberg data.While the baht rally has been driven by changes in market expectations of US Federal Reserve’s rate outlook and Thailand-specific factors, the rate panel will escalate close monitoring of the currency movements, the BOT said. The MPC will also consider approaches to manage foreign exchange transactions that exert significant pressures on the baht, it said.What Bloomberg Economics Says…The Bank of Thailand is likely to follow up on Wednesday’s rate cut with more in 2026. The central bank signaled willingness to ease further to support growth, which we see decelerating further in the quarters ahead. That said, BOT remains wary of its limited policy space. This suggests a skip at its next meeting — unless the growth outlook has darkened significantly by then. Among the risks it’s watching are evolving US trade policy and a possible budget delay for 2027.— Tamara Mast Henderson, Asean economistFor the full note, click here The central bank also downgraded its growth outlook for next year, to 1.5% from 1.6%, as consumption and exports slow. It sees growth accelerating to 2.3% in 2027, when headline inflation is expected to return to BOT’s 1% to 3% target range, it said. Political uncertainty has reemerged as Prime Minister Anutin Charnvirakul dissolved parliament earlier this month, setting up elections on Feb. 8 and leaving the country under a caretaker administration with limited fiscal capacity. The central bank expects the election to cause a delay of about two to three months in the implementation of federal budget for the fiscal year starting Oct. 1, 2026. Meanwhile, consumer prices have remained in negative territory since April, largely due to supply-side factors. Thailand has struggled to keep inflation within the central bank’s 1%–3% target range for most of the past decade. The rate panel said subdued inflation is primarily due to lower global energy prices and government subsidies to alleviate living costs. It sees low deflationary risks as reflected by the absence of broad-based declines in goods and services prices.While recent rate cuts have led to lower borrowing costs in the banking system, overall credit growth remains negative, partly due to subdued private spending and investment amid heightened uncertainty, BOT said. The central bank will closely monitor credit growth and extend targeted financial measures to assist vulnerable groups of borrowers, it said.—With assistance from Pathom Sangwongwanich, Patpicha Tanakasempipat, Cecilia Yap and Matthew Burgess.Postmedia is committed to maintaining a lively but civil forum for discussion. Please keep comments relevant and respectful. Comments may take up to an hour to appear on the site. You will receive an email if there is a reply to your comment, an update to a thread you follow or if a user you follow comments. Visit our Community Guidelines for more information.