The MPC cut the policy rate to 1% to ease financial conditions, support SMEs, and anchor inflation expectations, citing fragile growth, downside inflation risks, tighter SME credit, and emphasizing structural reforms beyond monetary policy.

MPC Cuts Policy Rate to 1.0% to Ease Financial Conditions

The Monetary Policy Committee (MPC) voted 4-2 to reduce the policy rate from 1.25% to 1.0% aiming to ease financial burdens on SMEs and households, anchor medium-term inflation expectations, and support business adaptation amid global uncertainties. The two dissenting members preferred to maintain the 1.25% rate, considering it appropriate given current economic conditions. The MPC views the new 1% rate as sufficient, emphasizing the importance of preserving remaining policy space during high uncertainty and highlighting that structural challenges require policy measures beyond interest rate adjustments.

Economic Outlook and Inflation Risks

The MPC regards the Thai economy as fragile, projecting growth near 2.0% YOY in 2026-27, below potential growth of 2.7%. Inflation faces downside risks due to lower energy prices and government subsidies, with headline inflation expected to return to the target range’s lower bound later than previously anticipated. Trade uncertainty remains due to fluctuating U.S. tariffs, while the risk of fiscal delays has diminished with improving government formation prospects.

Challenges Facing SMEs and Financial Stability Concerns

SMEs continue to face tight financial conditions with rising loan costs and baht appreciation impacting exporters’ profits. Despite policy rate cuts, micro-SME loan rates have increased due to higher credit risks and constrained lending. The MPC will monitor low-rate environment risks, noting increased risk-taking behavior and potential credit misallocation but sees no immediate threat. Monetary policy alone cannot resolve Thailand’s structural growth challenges, requiring complementary economic and financial reforms.

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SCB EIC raises Thailand’s 2026 economic growth forecast to 1.8% due to improved exports and private investment. However, growth remains below potential amid geopolitical and domestic challenges.

SCB EIC has raised its economic growth forecast for Thailand in 2026 to 1.8%, up from the previous estimate of 1.5%. This revision reflects improved export performance and increased private investment driven by a global economic recovery, particularly in AI technology and electronic goods. Despite this positive outlook, Thailand’s overall economic growth remains below its potential due to ongoing geopolitical tensions and structural challenges within the country.

Private sector investments are beginning to pick up, aided by foreign direct investment and a rebound in construction activities. However, government spending may slow down after significant economic stimulus in the last quarter of 2025. The Bank of Thailand is expected to reduce its policy rate to 1% to support economic activities, particularly among vulnerable households and SMEs.

Globally, SCB EIC anticipates a 2.7% growth in 2026, primarily driven by investments in AI and digital goods, which mitigate geopolitical pressures. While monetary policy remains accommodative, inflation risk persists, particularly in the U.S. As such, global financial conditions might stabilize but are unlikely to ease significantly given the inflationary pressures in various nations.

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Simeon Gutman
Morgan Stanley, Research Division

Okay. Hello. Thank you. Welcome, everybody. I’m Simeon Gutman, Morgan Stanley’s hardline, broadline food retail analyst. My pleasure to welcome Daniel Danker, EVP, AI Acceleration and Product Design from Walmart, most recently with Instacart as Chief Product Officer in Online Grocery. Thank you, Walmart, for being here third year in a row, and it probably took 3 years to be annointed as a tech company.

I recently — one introduction for Daniel before we get into this, I was talking with Doug about 2 months ago as an outgoing conversation. We talked about some of his hardest decisions, and we asked — I asked him about one of his best decisions. I didn’t know Daniel yet, but he mentioned it was hiring Daniel as someone at the enterprise level who can help advance AI. So high expectations, sorry about that.