Thailand cuts interest rate to boost economic recovery

Thailand’s central bank has strategically positioned its policy interest rate to counter economic challenges as financial conditions tighten and recovery remains uneven.

Minutes from the October 16 meeting of the Bank of Thailand (BoT) revealed that the Monetary Policy Committee (MPC) made an unexpected decision to lower the one-day repurchase rate by 25 basis points to 2.25%, marking the first reduction since 2020. This decision was supported by a 5-2 vote, with two members opting to maintain the rate.

The rate adjustment aims to alleviate the potential impact of stringent financial conditions on the economy. According to the minutes, the cut is intended to support household debt reduction and lower overall debt obligations.

“The current policy rate remained adequate to address risks to the outlook for the economy, inflation, and financial stability.”

The MPC observed a gradual improvement in household debt reduction, with Thailand’s household debt-to-GDP ratio standing at 89.6% at the end of the second quarter. This translates to a debt of 16.3 trillion baht (US$483 billion), one of the highest ratios in Asia.

The committee emphasised that the policy rate should remain neutral, matching the economy’s potential without being excessively low to prevent long-term financial imbalances. The BoT reiterated this stance following the meeting.

Attention now turns to the forthcoming rate review scheduled for December 18.

Domestic demand and tourism will be key drivers of the economy, as stated in a BoT paper prepared for a policy forum coinciding with the release of the minutes, reported Bangkok Post.

During the October 16 meeting, the BoT adjusted its GDP growth forecast for 2024 to 2.7%, up from 2.6%, while revising the 2025 projection to 2.9% from 3.0%. The previous year’s growth rate of 1.9% was noted as lagging behind other regional economies.

In related news, the Government of Thailand believes the recent reduction in the policy interest rate by the Monetary Policy Committee (MPC) will positively impact the economy.