Thailand set for fourth rate cut under new BOT chief

New Bank of Thailand Governor Vitai Ratanakorn is expected to lead the country’s fourth interest rate cut this year as policymakers try to support an economy hurt by a strong currency, falling prices, and weak demand. The decision will test Vitai’s leadership and demonstrate his commitment to maintaining a loose monetary policy to support economic growth.

The Bank of Thailand’s Monetary Policy Committee (MPC) is expected to reduce the one-day repurchase rate by 0.25 percentage points to 1.25% when it convenes on Wednesday. Most economists expect additional rate cuts in the coming months, as economic growth remains weak and inflation remains very low.

BOT signals policy shift as inflation stays weak

Vitai Ratanakorn said he wants to follow a friendly and flexible monetary policy that helps the economy grow steadily while also keeping the BOT free from political interference. His first Monetary Policy Committee meeting will reveal how he plans to steer the economy and the kind of message he wants to convey about Thailand’s future growth direction.

The BOT lowered its main interest rate by a full percentage point since October 2024 to support the economy after a slow recovery from the pandemic. Some investors now believe there will be at least two more quarter-point cuts in the next six months. However, economists say the bank still needs to do more to help because the economy has not gained much momentum despite the rate cuts. 

Experts say prices have already been falling for several months, so cutting rates again won’t risk inflation. Economist at ANZ Group Holdings Ltd., Krystal Tan, said the “combination of subdued growth and absent price pressures supports the case for further policy easing.” He added that the policy rate in Thailand could drop to 1% by early next year if the current situation persists.

People also don’t know what to expect from the next policy meeting because three of the seven members of the MPC are new, including Governor Vitai himself. The new entries might bring different opinions about how far the bank should go with rate cuts.

Economists now have differing opinions, as some from Standard Chartered Bank suggest that the central bank might cut rates by 50 basis points, while analysts at Citigroup expect a smaller 25-basis-point cut. However, they warn that the central bank could be forced to make deeper cuts later this year if the global economy slows further or if exports weaken more sharply.

The low level of inflation in Thailand could also lead to another rate cut, as it has remained below zero since April. The prices of goods and services have either stopped rising or have been falling because the current inflation rate is lower than the Bank of Thailand’s target range of 1% to 3%.

Exports rose by 5.8% in August, but the increase was the smallest in nearly a year, and economists attribute this slowdown partly to U.S. tariffs.

Markets are bracing for a softer baht and new economic support

The strength of the Thai baht is also a concern for policymakers. The baht is now the third-best-performing currency in Asia, having gained more than 5% over the past six months. This growth has hurt the country’s exports because Thai goods are now more expensive for foreign buyers. It has also made Thailand a more expensive destination for tourists, who bring in valuable foreign currency.

On the brighter side, the strong currency reduced the cost of imports, such as oil and machinery, but the benefit is far smaller than the losses faced by exporters and the tourism industry.

The weaker U.S. dollar is one of the factors pushing the baht higher in recent months. Foreign investors are also showing interest in Thailand’s stock and bond markets because of expectations that Thailand’s new government will launch larger spending programs to boost growth. Their investments have increased the demand for the baht, but some of them worry that higher public debt may affect Thailand’s credit quality.

These changes have sparked considerable interest among investors in what Governor Vitai Ratanakorn and the Bank of Thailand (BOT) will announce at the upcoming Monetary Policy Committee (MPC) meeting. The MPC will announce its decision at 2 p.m. Bangkok time, and financial markets are tense but remain hopeful.

Get seen where it counts. Advertise in Cryptopolitan Research and reach crypto’s sharpest investors and builders.