The MPC cut the policy rate to 1%, ahead of market expectations: signals a prolonged low-rate stance, with further easing conditional on downside risk.

The MPC voted 4 to 2 to cut the policy rate from 1.25% to 1.0%, citing the need to ease financial conditions, relieve SME and household debt burdens, anchor medium-term inflation expectations, and support business adaptation amid a shifting global order. Meanwhile, the two dissenting members voted to maintain the policy rate, viewing the 1.25% level as already appropriate for prevailing economic and financial conditions.

Overall, the MPC views the policy rate at 1% as sufficient and consistent with the economic outlook. In this meeting, the committee placed greater emphasis on medium-term financial stability risks associated with a low-interest rate environment and the need to preserve remaining policy space under elevated uncertainty. It reiterated that structural problems require a policy mix and cannot be resolved by policy interest rate alone.

The MPC views the Thai economy as fragile, with inflation facing downside risks.

• The MPC assesses that the Thai economy is likely to expand more than previously projected, but will still remain significantly below its potential. Growth is expected at around 2.0%YOY in 2026 and 2027, meaningfullybelow the BOT’s estimated potential growth rate of 2.7%YOY, with a clearly K-shaped recovery pattern. SME growth is expected to remain below pre-COVID-19 levels, while labor income growth is expected to decelerate.
• On trade policy, the MPC expects increased uncertainty surrounding the U.S. tariffs. In the near term, U.S. tariffs are likely to ease modestly,though the U.S. administration may invoke authorities under Sec. 232 (national security-related products) and Sec. 301 (unfair international trade practices) to raise tariffs again. The FY2027 budget delay risk has diminished, given improving prospects for government formation.
• Inflation faces increased downside risks, driven by both lower energy prices and government cost-of-living subsidy measures. Headline inflation is projected to return to the lower bound of the target range in H2/2027, later than previously assessed in H1/2027. In addition, demand-side inflation pressure remain limited, in line with an economy growing below its potential.

SMEs are facing tight financial conditions, both in terms of access to credit and the appreciation of the Thai baht.

• SMEs continue to face high financial costs, while credit has been contracting persistently. The BOT finds that despite cumulative policy rate cuts of 125 bps, new loan rates for micro-SMEs have actually risen by 150 bps over the past 15 months. This reflects rising credit risk among small businesses and tighter bank lending standards.
• Baht appreciation has further tightened financial conditions for exporters through FX conversion losses. A BOT analysis finds that exporting SMEs in exchange rate–sensitive sectors — such as agriculture, agro-processing, and textiles and garments — saw a significant profit decline in 2025 during the baht appreciation episode.

The MPC views the policy rate at 1% as “sufficient” to support the economy under limited policy space.

• The MPC assesses that a policy rate of 1% is sufficiently accommodative, consistent with the economic outlook and the need to preserve policy space. The effective lower bound remains 0.50% — equivalent to the COVID-era floor — leaving 50 bps of conventional space in reserve for severe downside scenarios.
• The MPC will monitor risks to financial stability in a low-interest rate environment. In this meeting, the committee discussed two key issues as follows:

o   Search-for-yield behavior stemming from low deposit interest rates: investments in riskier assets have increased since the first rate cut in October 2024. However, the MPC does not view this as concerning at present.

o   Credit misallocation: ultra-low rates could increase the number of zombie firms through lower financing costs, or encourage large firms to channel borrowing into low-productivity activities. Nevertheless, such risks may not yet be a major concern, given the continued caution of financial institutions.

• The MPC emphasized that Thailand’s structurally low growth cannot be addressed by monetary policy alone. A low interest rate is only one tool to facilitate the economy’s adjustment toward stronger growth. Economic policies to enhance competitiveness, along with targeted financial measures, will be critically important.