MPC Cuts Policy Rate as Expected; SCB EIC Expects Two More Cuts to 1.25% by Year-End
SCB EIC expects the MPC to cut the policy rate two more times this year, reaching 1.25% by end-2025
The MPC voted 5 to 2 to cut the policy rate by 0.25 percentage points to 1.75%, with two members voting to maintain the rate at 2.0%. This policy rate cut stems from the MPC’s assessment that The Thai economy is likely to slow, with increased downside risks arising from U.S. trade policy and retaliatory measures by major economies. In addition, foreign tourist arrivals came in lower than previously expected. Headline inflation is projected to fall below the target range, while financial conditions remain tight. Looking ahead, the MPC deems the trade war to be prolonged and to result in the long-term structural changes in global trade and supply chain. These developments significantly increase the uncertainty surrounding the economic outlook.
In this meeting, the MPC did not provide a baseline projection for the Thai economy, but instead presented scenario-based views due to persistently high uncertainty.
- The MPC views the escalating global trade tensions in H1/2025 as the onset of a “storm” that will begin to affect the Thai economy in H2/2025. At the same time, the endgame of this storm—which is expected to induce long-term structural changes in the global economic, financial, and trade systems—remains unclear.
- Regarding the Thai economic growth and headline inflation outlook, the MPC presented projections under two distinct scenarios without indicating which is considered the baseline case (Figure 1):
1) Reference Scenario: This scenario assumes that the U.S. maintains its current import tariff rates, meaning that Thailand will face a 10% tariff on its exports to the U.S., except for certain product categories subject to additional duties. Under this scenario, uncertainty surrounding U.S. trade policy is expected to persist through end-2026. In this case, the Thai economy is projected to grow by 2.0%YOY and 1.8%YOY in 2025 and 2026, respectively. Headline inflation is expected to be 0.5% and 0.8% in 2025 and 2026, respectively.
2) Alternative Scenario: This scenario assumes that the U.S. imposes only half of the reciprocal tariffs announced (on April 2, 2025) from Q3 this year, while its economy enters a technical recession within 2024. Under this scenario, the Thai economy is projected to grow by 1.3%YOY and 1.0%YOY in 2025 and 2026, respectively, with headline inflation at 0.2% and 0.4% over the same period. - The MPC judges that regardless of which global trade scenario materializes, Thailand’s economic growth will fall significantly short of previous projections, with materially increased downside risks.
In its latest communication, the MPC emphasized the need for monetary policy to be accommodative to support the adjustment of businesses and households amid heightened tensions and volatility in global trade. The MPC did not define the current episode of policy rate cuts as an “easing cycle,” as the shocks impacting the economy are not characterized as sharp, one-off disruptions akin to those during the Global Financial Crisis. Instead, the MPC expressed its readiness to adjust the policy rate as appropriate in response to evolving conditions. This marks a significant shift from previous communications, which underscored the need for monetary policy to remain in a “neutral” stance—one that neither stimulates nor restrains economic growth.
