FLASH
01 July 2025
SCB EIC expects additional two rate cuts this year, bringing the rate down to 1.25% by year-end, despite MPC’s upward revision to this year’s economic forecast
The MPC voted 6 to 1 to maintain the policy rate at 1.75%
The MPC voted 6 to 1 to maintain the policy rate at 1.75%, with one member voting to cut the policy rate by 0.25 percentage point. This decision to hold the rate reflects the MPC’s assessment that the previous policy rate cuts have been reasonably effective in managing downside risks. Monetary policy should remain accommodative to support the economy going forward. The Committee emphasized the importance of timing and the effectiveness of interest rate adjustments. Given the currently high level of uncertainty and limited policy space, the decision to maintain the policy rate is deemed appropriate in light of the expected economic slowdown and rising risks in the second half of the year.
The MPC sees limited likelihood that the Thai economy will grow by less than 2.0%YOY this year.
· In this meeting, the MPC resumed its baseline assessment of the Thai economic outlook, viewing the impact of the trade war as having become 'more limited in scope.' It now expects that the U.S. may not impose broad-based and substantial tariff hikes, which contrasts with the previous meeting where no clear baseline was provided. Nevertheless, global trade policy uncertainty remains high.
· For 2025, the MPC projects Thai GDP growth at 2.3%YOY, higher than the previous estimate of 2.0%YOY under the Reference Scenario (low tariff case) and 1.3%YOY under the Alternative Scenario (high tariff case). This upward revision is based on stronger-than-expected Q1 GDP outturn and continued robust expansion in Q2 economic indicators. Nevertheless, the Thai economy is expected to slow in the second half of the year due to a decline in merchandise exports and a drop in foreign tourist arrivals. In addition, intensified competition from imported goods continues to put pressure on the Thai business sector.
· For 2026, the MPC projects Thai GDP growth at 1.7%YOY, slightly below the previous estimate of 1.8%YOY under the Reference Scenario (low tariff case), but higher than 1.0%YOY under the Alternative Scenario (high tariff case).
· In this round of GDP projections, the MPC has fully incorporated the impact of the government’s THB 157 billion economic stimulus package, as well as the effects of the current Thailand-Cambodia situation. However, political uncertainties have not yet been included.
· The MPC deems the likelihood of Thai economic growth falling below 2.0%YOY in 2025 to be low, unless a severe shock that triggers a technical recession occurs (defined as two consecutive quarters of negative QoQsa GDP growth). Historically, the probability of a technical recession has been low in the absence of a crisis.
· Headline inflation is projected at 0.5% in 2025 and 0.8% in 2026, primarily driven by supply-side factors. Currently, there is no broad-based decline in prices, while the cost of living in certain categories—such as ready-to-eat meals and cooking ingredients—continues to rise. Therefore, the MPC assesses that the likelihood of Thailand entering a deflationary environment is low. Regarding the Israel-Iran situation, the MPC still views it as an upside risk to inflation, which has not been incorporated into the baseline projection.
· Credit growth has slowed due to declining loan demand and rising credit risk, particularly among SMEs, which are struggling with competitiveness against imported goods.
The MPC continues to assert that monetary policy needs to be 'accommodative,' but emphasizes the importance of proper 'timing'.
In its latest communication, the MPC emphasized that future policy rate adjustments must be executed with appropriate timing to ensure maximum effectiveness of monetary policy, given the limited policy space. The current high level of uncertainty may also reduce the effectiveness of a policy rate cut. Moreover, the MPC deems the policy interest rate to be a somewhat ineffective tool for addressing challenges that are concentrated in specific sectors of the economy, such as heightened competition from imported goods. Going forward, monetary policy decisions will depend on the overall credit conditions, the impact of the trade war, geopolitical risks, and domestic factors. The MPC may also consider cutting the policy rate if financial conditions tighten broadly and become inconsistent with underlying economic fundamentals.
The MPC sees limited likelihood that the Thai economy will grow by less than 2.0%YOY this year.
· In this meeting, the MPC resumed its baseline assessment of the Thai economic outlook, viewing the impact of the trade war as having become 'more limited in scope.' It now expects that the U.S. may not impose broad-based and substantial tariff hikes, which contrasts with the previous meeting where no clear baseline was provided. Nevertheless, global trade policy uncertainty remains high.
· For 2025, the MPC projects Thai GDP growth at 2.3%YOY, higher than the previous estimate of 2.0%YOY under the Reference Scenario (low tariff case) and 1.3%YOY under the Alternative Scenario (high tariff case). This upward revision is based on stronger-than-expected Q1 GDP outturn and continued robust expansion in Q2 economic indicators. Nevertheless, the Thai economy is expected to slow in the second half of the year due to a decline in merchandise exports and a drop in foreign tourist arrivals. In addition, intensified competition from imported goods continues to put pressure on the Thai business sector.
· For 2026, the MPC projects Thai GDP growth at 1.7%YOY, slightly below the previous estimate of 1.8%YOY under the Reference Scenario (low tariff case), but higher than 1.0%YOY under the Alternative Scenario (high tariff case).
· In this round of GDP projections, the MPC has fully incorporated the impact of the government’s THB 157 billion economic stimulus package, as well as the effects of the current Thailand-Cambodia situation. However, political uncertainties have not yet been included.
· The MPC deems the likelihood of Thai economic growth falling below 2.0%YOY in 2025 to be low, unless a severe shock that triggers a technical recession occurs (defined as two consecutive quarters of negative QoQsa GDP growth). Historically, the probability of a technical recession has been low in the absence of a crisis.
· Headline inflation is projected at 0.5% in 2025 and 0.8% in 2026, primarily driven by supply-side factors. Currently, there is no broad-based decline in prices, while the cost of living in certain categories—such as ready-to-eat meals and cooking ingredients—continues to rise. Therefore, the MPC assesses that the likelihood of Thailand entering a deflationary environment is low. Regarding the Israel-Iran situation, the MPC still views it as an upside risk to inflation, which has not been incorporated into the baseline projection.
· Credit growth has slowed due to declining loan demand and rising credit risk, particularly among SMEs, which are struggling with competitiveness against imported goods.
The MPC continues to assert that monetary policy needs to be 'accommodative,' but emphasizes the importance of proper 'timing'.
In its latest communication, the MPC emphasized that future policy rate adjustments must be executed with appropriate timing to ensure maximum effectiveness of monetary policy, given the limited policy space. The current high level of uncertainty may also reduce the effectiveness of a policy rate cut. Moreover, the MPC deems the policy interest rate to be a somewhat ineffective tool for addressing challenges that are concentrated in specific sectors of the economy, such as heightened competition from imported goods. Going forward, monetary policy decisions will depend on the overall credit conditions, the impact of the trade war, geopolitical risks, and domestic factors. The MPC may also consider cutting the policy rate if financial conditions tighten broadly and become inconsistent with underlying economic fundamentals.