Bank of Thailand slashes rates as the economy braces for impact. Weak GDP, US tariffs and stagnant loan books spark fears, but officials insist the move is strategic, not political. Will Thailand weather the storm, or is this just the beginning of another year of disappointment?
Thailand’s central bank Monetary Policy Committee on Wednesday somewhat surprised the market with a 25 basis points reduction in the borrowing rate. In essence, the bank was preempting nervousness about new Trump retaliatory tariffs and growing unease about receding bank loan books. The news comes just a week after 2024 GDP figures were revised downwards as the Thai economy succumbs to internal structural problems and now rising geopolitical headwinds. Monetary Policy Committee Secretary-General Sakkapop Panyanukul was eager to make it clear that the move was not part of a cyclical downward movement.
On Wednesday, the Bank of Thailand Monetary Policy Committee cut the country’s base lending rate from 2.25% to 2%. Afterwards, the Secretary-General of the panel, Mr. Sakkapop Panyanukul, asserted that the move was not a response to political pressure.
Indeed, in Bangkok on Wednesday, there were reports of a heavily worded letter to the committee from the government, conveyed through the Ministry of Finance. In short, it called for a cut in interest rates to combat anaemic inflation.
Nonetheless, on Wednesday evening, Mr. Sakkapop was adamant. In contrast to the government’s emphasis, he said the move was in response to a weak and challenged economy.
Economic concerns grow as GDP forecasts weaken despite strong export performance in early 2025
Certainly, analysts in Thailand have been cautious after GDP figures for the last quarter of 2024 were revised downwards. In short, Thailand’s GDP only grew by 2.5% last year. In addition, there are ominous signs that this figure may be all that can be expected in 2025, indeed, it could well be lower.
This comes despite a strong start to 2025 in terms of exports. On Wednesday, the Ministry of Commerce reported that outward shipments were up a sizable 13.6% in January 2025 compared to 2024. Shipments came in at $25.3 billion, propelled by a massive 45.5% rise in rubber sales.
Furthermore, wheat and processed foods were also up substantially at 19.5%, with products such as canned food and seafood. Some analysts suggest that this may be due to buyers placing orders ahead of feared Trump retaliatory tariffs.
These tariffs could possibly hit Thailand as early as April 2025, although the details are still being prepared in Washington DC.
Thailand waits on new Trump retaliatory trade tariffs to be launched within hours from the White House
The new regime will mean the US will charge Thailand equivalent tariffs to import US goods into Thailand. At the same time, Thai officials, led by Minister of Commerce Pichai Naripthaphan, are hopeful of being able to negotiate with the Trump administration. Certainly, they feel they can at least ameliorate the situation.
During his commentary after Wednesday’s call, in a 6-1 vote, Mr. Sakkapop did refer to the US trade war indirectly. In brief, the panel took the view that Thailand faces rising headwinds to economic growth this year.
In particular, he underlined that this move should not be taken as part of a lower interest rate cycle. For instance, some commentators are warning that Trump’s draconian new tariff environment may see US interest rate reductions halted due to inflation fears. In turn, this could even lead to a tighter US monetary policy.
In truth, the world’s geopolitical and economic outlook is in turmoil as executive orders and tweets fly at the White House.
At the same time, the Thai central bankers at Wednesday’s meeting were anxious to portray their response as strategic. In short, a response to changing dynamics and data.
Bank of Thailand defends rate cut as essential to counteract economic headwinds and financial threats
“Most members viewed that the interest rate should be cut to bring financial conditions in line with economic trends, inflation, and financial system stability, as well as to address clearer downside risks. Meanwhile, one member viewed that the policy rate should be maintained, as it placed more importance on maintaining the capability of monetary policy to cope with higher uncertainty in the future after the Thai economy in 2024 expanded less than estimated due to high inventory disposal, despite strong domestic demand, tourism, and merchandise exports,” explained Mr. Sakkapop.
Meanwhile, the Bank of Thailand official also emphasized that the problems in the Thai economy were linked to internal structural issues in Thailand.
For instance, concerns are expressed about the fate of small SMEs who are failing to compete with cheaper Chinese imports.
At length, also on Wednesday, the Chairman of the Thai National Shippers’ Council, Mr. Chaichan Charoensuk, unusually warned about Chinese imports.
Mr. Chaichan confirmed that Thai exports in 2025 should grow by 7-10%. However, he urged the government to tackle the kingdom’s deficit with China.
Loan books stagnate as Thai banks struggle to extend credit to small businesses and vulnerable households
Mr. Sakkapop also acknowledged on Wednesday that bank loan books were not growing.
He told reporters that they were ‘stabilizing’, as he admitted that loans to small business owners were particularly weak, as were loans to households. Significantly, he suggested that household income in Thailand has not yet recovered since the pandemic.
At this time, Thai banks are lending to large corporate clients. Therefore, the interest rate reduction would help ease their cost burden.
Meanwhile, the central bank will examine the depth of loan facilities to vulnerable groups.
Nonetheless, Mr. Sakkapop insisted that although credit was tight, there was no threat to the stability of the financial system.
The comment reflects a frank admission by Thailand’s financial leaders that at this time, tackling inequality has fallen by the wayside. The focus appears to be on maintaining stability in the face of huge uncertainty and geopolitical shifts.
Thai banking sector shifts focus as economic uncertainty forces strategic adjustments in financial policies
Earlier in the week, Mr. Kris Chantanot, the Chief Executive Officer of Siam Commercial Bank, gave his assessment. He spoke to the year ahead. Basically, he suggested that GDP growth would not be lower than the 2.5% seen last year.
He notably suggested that the government’s ‘You Fight, We Help’ debt restructuring initiative for Thai borrowers had failed. He certainly saw the US trade war impact as a fundamental impact on the Thai economy in 2025.
However, the top banker was more interested in speaking to the growing wealth management business in Thailand. Indeed, he observed that the wealth management division of banks would grow 6% this year. In particular, he noted that the sector in Thailand was presently worth over $1 trillion.
Thailand braces for economic turbulence in 2025 as bankers address risks from trade and financial shifts
In short, the kingdom appears to be bracing itself in 2025 to manage the chaos and weather the Trump storm. With officials apparently less focused on small businesses and households, the Thai financial system is poised to maintain stability and ride out the headwinds.
Thai approach was essentially confirmed by Mr. Sakkapop on Wednesday. Firstly, he was confident that inflation would be at the lower end of expectations.
Economic growth in 2025 faces growing downside risk as growth for 2024 now confirmed at only 2.5%
Thailand waits on new Trump retaliatory trade tariffs to be launched within hours from the White House
Certainly, this would help strengthen Thai firms and alleviate the hardship on households. Meanwhile, Wednesday’s interest rate cut would assist larger corporate borrowers.
Ultimately, the focus is on maintaining financial stability and being in a position to accommodate future uncertainties.
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Further reading:
Economic growth in 2025 faces growing downside risk as growth for 2024 now confirmed at only 2.5%
Trump Presidency already having a heavy impact on Thailand even before he talks trade with Bangkok
Trump Presidency already having a heavy impact on Thailand even before he talks trade with Bangkok
Economy sees sharp setback with lower private spending, investment and foreign tourism income
Trump’s trifecta triumph means Thailand will be more on edge as he prepares to take power in January
