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Thailand: Further monetary easing likely after temporary trade de-escalation
The BOT has signaled that following two consecutive 25-bps rate cuts in Feb and Apr, the current policy stance provides sufficient support against the adverse effects of the US reciprocal tariffs. However, given persistent uncertainties surrounding global trade policy, the central bank aims to preserve its remaining policy space to mitigate potential future shocks (BOT Governor: Meet the Press, 9 May 2025). The recent MPC meeting minutes highlighted the likelihood of growth undershooting earlier projections, primarily due to rising trade-related risks (MPC Minutes: Link). Consequently, monetary policy should remain agile and responsive to evolving economic conditions and risk factors.
The BOT anticipates that, although less severe than shocks experienced during the 2008 global financial crisis or the COVID-19 pandemic, the current trade tensions could impose prolonged and persistent economic headwinds, potentially accompanied by periodic disruptions.
Furthermore, most MPC members stressed the need for vigilant monitoring of global trade developments and their implications for Thailand. They concurred that monetary policy decisions must remain data-dependent and forward-looking, underscoring the critical importance of safeguarding limited policy flexibility.
According to the BOT, the impacts of global trade tensions are likely to intensify in the second half of 2025, predominantly via three transmission channels: (1) reduced exports, particularly direct shipments to the US market; (2) intensified competition affecting Thai exports amid shifting global trade flows; and (3) weaker private investment due to elevated policy uncertainty and diminished business confidence. Additionally, the central bank highlighted the risk that sustained tariff disparities could prompt businesses to relocate production away from Thailand toward competitor economies.
Therefore, we now expect the BOT to hold its policy rate steady at the upcoming meetings in Jun and Aug. However, we anticipate that the central bank will resume its easing cycle with a 25-bps cut at each of the meetings in Oct, Dec, and on to the first quarter of 2026. Under our baseline scenario, this would bring the terminal policy rate to 1.00% by the end of Q1 2026. This outlook assumes that US-trading partner negotiations result in a 10% universal tariff, with reciprocal tariffs between the US and China remaining unchanged from the 90-day pause period.
Looking into the rest of 2025, the BOT's MPC meetings are scheduled for 25 Jun, 13 Aug, 8 Oct, and 17 Dec. The meeting schedule for next year has not been published. Governor Sethaput Suthiwartnarueput will continue to chair the MPC meetings until his term expires on 30 Sep 2025, after which a new governor, currently in the selection process, will assume the role for the remaining meetings.
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Enrico Tanuwidjaja
Economist
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Sathit Talaengsatya
Economist
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