Business
MPC lowers policy rate to 1%, signaling an extended low-rate approach and potential further cuts if risks emerge
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.