By Amanda Lee
Thailand's central bank took its last window of opportunity this year to give the economy some support, resuming rate cuts as growth stagnates and risks mount.
The Bank of Thailand's monetary policy committee voted unanimously to reduce the policy rate to 1.25% from 1.50%.
The decision, expected by all 12 economists in Wall Street Journal poll, comes as the Southeast Asian economy struggles to gain momentum, dogged by a lackluster tourism recovery, subdued demand and persistent deflation.
Given the apparent economic slowdown, plus heightened risks, the BOT said in a statement that monetary policy can be more accommodative to ensure financial conditions can support a recovery.
Tepid growth has fueled calls for monetary support, and the central bank has now delivered four cuts so far this year.
It had paused at its last meeting in October, the month that Gov. Vitai Ratanakorn took the reins at the BOT.
Policymakers have stressed that prior rate cuts are still filtering through to the economy, and that there is limited space for more easing.
They repeated that line on Wednesday, but also reiterated that the BOT stands ready to adjust policy as needed.
The Thai economy slowed in the second half of the year due to factors like flooding and reduced tourism that are likely to drag on until early 2026, the BOT said.
This year, it expects economic growth to slow to 2.2% from 2.5% in 2024, before decelerating even further to 1.5% in 2026.
Private consumption is likely to lose steam in line with income, it said, while exports are feeling the effects of U.S. tariffs.
The Thai economy should rebound mildly in 2027, but at 2.3%, growth will remain below potential, the BOT said.
It cut inflation expectations as well, a move that could stoke concerns about deflation becoming entrenched.
For now, the central bank views deflation risks as low, attributing the ultra-low price pressures to global energy prices and government subsidies.
BOT expects headline inflation to contract this year, and only gradually return to its target range by the first half of 2027.
Many economists expect more rate cuts ahead, but echo the BOT's stance that fiscal policy must also play a role.
There are some concerns on that front though, after a political scandal led to the ouster of the former prime minister, creating uncertainty about the direction of government policy.
Thailand's new prime minister, Anutin Charnvirakul, last week dissolved parliament, paving the way for a general election next year.
While markets have viewed that as a step toward more policy clarity, it will take time for the new administration to deliver on stimulus. And if past experience is anything to go by, measures could be delayed by political infighting, analysts say.
BOT could come under pressure to loosen policy further, Capital Economics' Gareth Leather said in a note.
But it has pushed back against that before, he points out. "The bigger risk is that prolonged political uncertainty encourages short-term, populist policymaking that undermines Thailand's longer-term economic prospects," Leather said.
The BOT has flagged government stimulus as a key risk to monitor, alongside the impact of severe flooding in the country and of U.S. tariffs.
Also weighing on the central bank's mind is the strength of the baht, which is hovering at multiyear highs against the dollar.
On Wednesday, it reiterated that it will step up scrutiny of foreign-exchange moves.
The Thai baht weakened against the dollar after the rate decision.
Though a strong baht threatens to undermine the already-struggling tourism recovery and undercut exporters' competitiveness, analysts note that on the flipside, the currency can withstand more policy easing.
Write to Amanda Lee at amanda.lee@wsj.com
(END) Dow Jones Newswires
December 17, 2025 03:45 ET (08:45 GMT)
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