The Bank of Thailand’s (BoT) rate-setting committee is now prioritizing concerns over the country’s declining growth outlook, with Nomura Holdings Inc. anticipating more aggressive rate cuts to stimulate the economy.
According to edited minutes from the Monetary Policy Committee (MPC) meeting in February, during which there was a surprise quarter-point rate cut to a key rate of 2%, the committee noted that the balance of risks for monetary policy has shifted towards the economic outlook.
The MPC expressed that economic growth is likely to fall “significantly below expectations” due to issues within the local manufacturing sector, tighter financing for households and businesses, and the ongoing global trade tensions. Six members voted in favor of the rate cut, with some suggesting that it “would help cushion the economy in the face of potential lower growth in the coming period.” In contrast, one member opposed the cut, advocating for the preservation of monetary policy flexibility to address increased uncertainties ahead.
This reflects growing pessimism in Southeast Asia’s second-largest economy, which was already struggling with subpar domestic growth before facing potential export challenges from US tariff threats. The central bank now projects GDP growth to be slightly over 2.5% this year, down from its previous estimate of 2.9% made in December.
Nomura has revised its forecast for BoT rate cuts in the coming year, now estimating total cuts of 100 basis points, which would lower the policy rate to 1% by the first quarter of 2026. They anticipate four rate cuts of 25 basis points each in June, October, December, and February.
In a note published on Tuesday, Nomura economist Charnon Boonnuch stated, “We perceive that local sentiment is deteriorating due to the stock market decline and escalating structural issues, alongside limited governmental reform prospects.”
Key highlights from the minutes include:
- If the United States were to raise import tariffs on Chinese goods to 30% and impose a 10% tariff on goods from high-risk countries, including Thailand, economic growth could decline by approximately 0.3 to 0.5 percentage points from the baseline forecast.
- Economic recovery has become “more uneven,” with the services sector benefitting from a tourism boom and demand for electronic goods driving exports, while manufacturing and real estate continue to face challenges.
- Headline inflation is expected to stabilize within the lower range of the 1% to 3% target due to supply-side factors, although there are no indications of future deflation.
- It is noted that the February rate cut is “not intended as the beginning of an easing cycle.”
- Some MPC members believe that a policy rate of 2% remains sufficient to handle future uncertainties, provided the economy does not face more severe shocks than anticipated.
- Risks to long-term financial stability have decreased as a result of the ongoing debt deleveraging process.
