Central Bank delivers surprise rate cut in February

Cut surprises markets: At its meeting on 26 February, the Bank of Thailand (BOT) decided to cut the policy rate by 25 basis points from 2.25% to 2.00%. One member of the Bank voted to maintain the current rate. The reduction caught markets by surprise, as a hold had been priced in.

Bank caves in to government pressure: The decision came after the government urged the BOT to cut rates in order to keep inflation within the 1.0–3.0% target range and reignite the economy. In justifying its decision, the Bank pointed to a slower-than-expected expansion of the Thai economy amid structural challenges in manufacturing and competition from imports. With regard to inflation, the Bank stated that price pressures are expected to stabilize around the lower bound of the target range, with risks skewed to the downside.

Further cuts likely: At a subsequent press briefing, Assistant Governor Sakkapop Panyanukul stated that the BOT’s policy space is narrowing and the current policy level is neutral, hinting at a renewed pause in monetary easing. However, our Consensus is for about 25 basis points of further rate reductions by year-end; half of our panelists expect further policy loosening, while the other half see the policy rate ending 2025 at its current level. Slower-than-expected economic growth is a downside risk to the policy rate, while a weaker-than-anticipated baht and softer-than-expected U.S. rate cuts are upside risks. The BOT will reconvene on 30 April.

Panelist insight: United Overseas Bank analysts Enrico Tanuwidjaja and Sathit Talaengsatya said: “We expect the BOT to keep the policy rate at 2.00% for the remainder of 2025, reflecting the central bank’s priority of maintaining sufficient policy space. However, additional rate cuts cannot be ruled out if the downside risks materialize, particularly the adverse effects of escalating trade tensions on the economic outlook.” Nomura analysts held a more dovish view: “We now expect the BOT to cut the policy rate by a total of 50bp this year, taking the policy rate to 1.5% in 2025 (below our previous forecast of 1.75%), after recently flagging the risk of a larger cut from the new governor. […] While we acknowledge the BOT’s latest assessment of the growth outlook (now in line with our forecast) implies limited scope for more disappointment from the policy perspective, we see scope for a large inflation miss, which we think could be the next trigger for more cuts.”

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