The BoT delivered its first back-to-back rate cut since 2020, taking the cumulative reductions since October to 75 basis points. — Bloomberg
Bangkok: The Bank of Thailand (BoT) has cut its key interest rate and says it stands ready to ease monetary policy further as the global trade war prompts a sharp downgrade in the outlook for economic growth.
The BoT’s seven-member Monetary Policy Committee voted five to two to lower the one-day repurchase rate by a quarter point to 1.75%, the lowest level in two years, as predicted by 17 of 21 economists surveyed by Bloomberg.
“Monetary policy needs to be more accommodative,” BoT assistant governor Sakkapop Panyanukul said at a briefing yesterday after the decision. “We have shifted our policy stance to easing.”
The BoT delivered its first back-to-back rate cut since 2020, taking the cumulative reductions since October to 75 basis points.
While Sakkapop said the BoT’s statements don’t imply it’s in an easing “cycle”, the central bank’s tone was more dovish from after its rate cuts in October and February, when it said it would keep a “high bar” for further cuts.
It also shows the urgency of the BoT’s response as the US threatens 36% tariffs on Thai exports, with policymakers deciding to act now despite previously saying they would preserve their limited policy space for a “quite substantial” shock.
“The US trade policies and potential retaliations from major economies will cause significant changes in the global economic, financial, and trade landscape,” the central bank said in its monetary-policy statement yesterday.
“The Thai economy is projected to expand at a slower pace than anticipated, with more downside risks due to uncertainty in major economies’ trade policies and a decline in the number of tourists.”
The baht pared gains to trade little changed by 4pm local time.
The yield on the 10-year baht bond declined one basis point yesterday to 1.877%. The Thai central bank made deep cuts to its outlook for gross domestic product (GDP) growth this year, considering two possible scenarios depending on how US tariff negotiations go.
GDP growth will likely come in at approximately 2% this year if the United States sticks with its baseline 10% tariff on all countries and China gets a lower 54% levy after the 90-day pause, the BoT said.
That’s well below the 2.9% estimate the central bank set in December and less than even its downward revision of 2.5% in February.
In an alternative scenario, where countries get half of their threatened tariffs and China faces a 72.5% levy, GDP growth could fall to as low as 1.3% – the slowest pace since the pandemic.
The BoT did not provide a scenario should the United States retain its planned 36% tariff on Thai goods.
“The BoT may want to wait until the government concludes its trade negotiations with the United States,” likely choosing to stand pat in June then lowering the key rate by another 25 basis points in the third quarter, Standard Chartered Plc economist Tim Leelahaphan said.
To avert high US tariffs, Prime Minister Paetongtarn Shinawatra’s administration has offered to step up imports of US commodities like corn, natural gas and ethane, besides reducing import duties and removing non-tariff barriers to secure a deal. — Bloomberg
