MPC Cuts Policy Rate as Expected; SCB EIC Expects Another Cut to 1.25% in Q4

The MPC Unanimously Votes to Cut the Policy Rate by 0.25% to 1.50%, in Line with SCB EIC’s Expectations. The latest policy rate cut reflects the MPC’s assessment that there remains room for further monetary policy easing to help alleviate tight financial conditions, particularly to (1) support businesses affected by U.S. tariff measures, which will exacerbate existing competitiveness challenges, allowing them to better adjust amid intensifying foreign competition; and (2) ease the financial burdens of vulnerable economic sectors. Looking ahead, the MPC judges that monetary policy should remain accommodative to support the economy, while maintaining a balanced approach to medium-term stability, given the limited policy space and the effectiveness of monetary policy transmission.

The MPC Expects the Thai Economy to Slow in H2/2025, While Inflation Remains Low Due to Supply-Side Factors

· The MPC judges that the Thai Economic outlook remains largely unchanged from the previous assessment. In the June 2025 meeting, the MPC projected Thai GDP growth at 2.3%YOY and 1.7%YOY in 2025 and 2026, respectively. The MPC assessed that Q2 economic growth would outperform previous expectations, primarily driven by merchandise exports and manufacturing, following a surge in merchandise exports to the U.S.

· The MPC expects economic growth to slow in H2/2025. This slowdown is partly attributed to the front-loaded production and export of goods to the U.S. market in the first half of the year. Moreover, the MPC expects other key economic drivers, particularly the tourism sector, to lose momentum going forward. The MPC may revise down its foreign tourist arrival projections in the upcoming October 2025 meeting. As of the June 2025 meeting, the forecasts stood at 35 million and 38 million international arrivals in 2025 and 2026, respectively.

· The MPC stresses the need to monitor the impact of transshipment tariffs and intensifying import competition. The MPC assesses that while the import tariffs imposed by the U.S. on Thai goods are not significantly less favorable than those applied to competitors, the elevated overall tariff levels, along with upcoming measures such as transshipment-related tariffs and product-specific duties (e.g., on electronics), could dampen global export demand. This may lead to intensified competition with medium-term implications. Consequently, the adjustment of the business sector will be a key factor in supporting Thai economic recovery going forward.

· Headline inflation remains low due to supply-side factors. Raw food prices declined due to increased supply, while energy prices fell mainly in line with global crude oil prices. However, there has yet to be a broad-based decline in the prices of other goods and services, as reflected in core inflation, which remains stable at around 1%.


The MPC Will Monitor Credit Contraction and the Appreciation of the Baht, Which May Affect Future Economic Activity

·  Credit contraction may further strain vulnerable economic sectors. The ongoing credit contraction stems from declines in SME and household lending, partly due to financial institutions’ increased caution in extending new credit to high-risk borrowers. At the same time, lending to large businesses has also slowed in line with reduced credit demand amid elevated economic uncertainty.

· USDTHB has appreciated against regional currencies, in line with weaker U.S. Dollar Index and rising gold prices.

· The MPC maintains that monetary policy needs to remain “accommodative,” while acknowledging limited policy space and diminishing transmission effectiveness. To date, the policy rate has been reduced by a cumulative of 1.0 percentage point from 2.50% at the beginning of 2024 to the current level of 1.50%. Going forward, the MPC will carefully consider the remaining limited policy space and the declining effectiveness of monetary transmission in a low interest rate environment.