Thailand Cuts Rate as Currency Surge Adds to Growth Headwind

The Bank of Thailand complex in Bangkok. Photographer: Andre Malerba/Bloomberg Photo by Andre Malerba /Bloomberg

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(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.

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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. 

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“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.

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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.

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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.”  

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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.

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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.

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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.

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What Bloomberg Economics Says…

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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.

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— Tamara Mast Henderson, Asean economist