Bank of Thailand Surprises With 4-2 Vote to Cut Key Rate

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(Bloomberg) — The Bank of Thailand unexpectedly lowered its key interest rate in a split decision, with policymakers acting to shore up the fragile recovery amid persistent domestic and external uncertainty. The baht erased earlier gains.

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The central bank’s Monetary Policy Committee voted four to two on Wednesday to cut the one-day repurchase rate by 25 basis points to 1%, the lowest level since September 2022. Only three of 23 economists surveyed by Bloomberg had predicted the move, with the rest seeing no change. The meeting was attended by six members, with one seat on the committee still vacant.

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“We do not think this marks the end of the easing cycle,” Gareth Leather, a senior economist at Capital Economics who correctly predicted the cut, said in a text message. “With growth likely to struggle and inflation pressures extremely weak, we expect at least one additional 25 basis point cut before the cycle concludes.”

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The Thai baht was little changed at 31.040 per dollar, erasing an earlier advance. The baht has gained 8.6% in the past year to be Asia’s second-best performer, and the central bank said in a statement that it’s closely monitoring the currency amid signs the exchange rate is misaligned with economic fundamentals.

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The appreciation has tightened financial conditions for exporters, especially those facing intense price competition and low profit margins, the BOT said. While lenders have gradually followed the BOT’s past rate cuts, small and medium enterprises still face high borrowing costs and credit remains weak, it added.

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“Economic growth is projected to remain below potential in 2026 and 2027 and uneven across sectors, reflecting structural impediments and intensified competition,” the Bank of Thailand said. The current interest rate “reflects a sufficiently accommodative monetary policy stance and aligns with the economic outlook, while being conducive to the gradual return of inflation to the medium term target range.”

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The surprise easing comes after upbeat remarks from Finance Minister Ekniti Nitithanprapas, who this week said the economy is out of “the ICU” — the intensive care unit.

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It also follows a series of positive indicators, including stronger-than-expected growth last quarter. While exports rose at the fastest pace in four years in January and political uncertainty has eased since the Feb. 8 election, policymakers remain wary that high household debt and tight financial conditions could disrupt the recovery in consumption and investment.

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Thailand meanwhile faces mounting external risks, from geopolitical tensions to volatile global markets and climate-related disruptions. With negative inflation prints for the past 10 months, officials have scope to provide further support for the economy.

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Headline inflation likely won’t return to the central bank’s 1%-3% target range until the second half of 2027, later than the initial forecast of the first half, the BOT said. It argued that below-potential economic growth, weak purchasing power, easing energy prices and other government measures could dampen price pressures in 2026 and 2027.