Economic growth falls short of expectations, government continues to exert pressure

This interest rate cut is the first policy adjustment since October 2024 and is not widely expected by the market. Previously, Thai Prime Minister Paetontarn Shinawatra publicly called for interest rate cuts, and the IMF also suggested reducing borrowing costs to help high debt households and sluggish economic growth.

In 2024, the Thai economy will only grow by 2.5%, far below market forecasts and far below the 4.9% growth level of neighboring Indonesia. The Bank of Thailand predicts that the GDP growth rate in 2025 may only be 2.9%, reflecting the fragility of economic recovery.

Low inflation provides space for interest rate cuts

BOT stated that although domestic demand and tourism still provide some support, manufacturing difficulties, global trade policy changes, and structural issues are all putting pressure on the economy. In addition, Thailand's inflation level has approached the lower limit of the central bank's target range of 1% -3%.

The further decline in energy prices due to government subsidies makes the decision to cut interest rates somewhat reasonable.

The manufacturing industry is impacted by imports, and the Thai baht continues to be under pressure

Cheap imported goods are impacting local industries, and BOT has recently emphasized that Thailand's manufacturing industry is facing a strong impact from imported goods. Due to the lack of competitiveness of local products, thousands of factories have closed down in recent years, and the industrial sector is facing structural difficulties.

Trade policy risks increase, Thai baht trend weakens

Thailand's trade surplus with the United States will reach 35.4 billion US dollars in 2024, which could make it a potential target for US President Trump's trade policies. In order to reduce trade frictions, the Thai government plans to expand imports of ethane and agricultural products from the United States to reduce the risk of being subject to tariffs.

Affected by interest rate cuts, the Thai baht failed to rebound, and there are still concerns in the market about further depreciation of the Thai currency. If the export recovery is weak, the Thai baht may continue to be under pressure.

Interest rate cuts may boost economic recovery, but challenges still exist

1. Increased government financial support: The Thai government plans to launch a series of economic stimulus policies, including increasing infrastructure investment and expanding social welfare spending, which may help boost domestic demand.

2. The tourism industry continues to recover: Since 2024, Thailand's tourism industry has maintained steady growth, and it is expected that the number of foreign tourists will reach 35 million throughout the year, which will provide some support for GDP.

3. The outlook for the manufacturing industry remains uncertain: If the impact of cheap imported goods continues to intensify, Thailand's manufacturing industry may find it difficult to recover, dragging down overall economic growth.

Editor's viewpoint:

The unexpected interest rate cut by the Bank of Thailand reflects the government's concerns about slowing economic growth and hopes to stimulate domestic demand and investment through loose policies. However, the long-term decline in manufacturing competitiveness, coupled with trade policy uncertainty, remains a key challenge affecting Thailand's economic recovery.

Whether the Thai economy can successfully stabilize through interest rate cuts in the future still depends on the effectiveness of government fiscal policies and changes in the global trade environment.