Central Bank cuts rates in February

Rates cut to multi-year low: At its meeting on 25 February, the Bank of Thailand (BOT) decided 4 to 2 to cut the policy rate by 25 basis points to 1.00%, with the two dissenters voting to keep the rate at 1.25%. The cut surprised most market analysts, who had priced in a hold, and brought the rate to its lowest level since 2022.

Below-potential growth and rising deflation risk motivate cut: The cut was aimed at keeping financial conditions supportive of economic recovery and alleviating the debt burden of SMEs and households. While the Thai economy grew faster than expected in Q4 2025, partly due to temporary factors, growth is projected to remain below potential in 2026 and 2027, held back by structural impediments and intensified competition. Moreover, overall credit continues to contract, and SME and household liquidity remain tight. On inflation, downside risks were assessed as having increased relative to the previous assessment, driven by falling energy prices, potential additional government measures and weak demand pressures, with headline inflation now expected to return to target later than previously forecast.

Further rate cuts unlikely this year: In its communique, the Bank signaled a pause by stating that the current policy rate is the right balance between supporting economic recovery and allowing for a gradual return to the inflation target. Still, it stressed the importance of safeguarding medium-term financial stability and leaving some room to lower interest rates further amid heightened global uncertainty. The BOT also noted that structural challenges cannot be addressed by monetary policy alone and called for a broader policy response to boost productivity and competitiveness. Most of our panelists see rates on hold for the rest of 2026, while a minority expect another 25 basis-point cut amid sluggish inflation and slower GDP growth compared to 2025. The BOT’s next decision will be announced on 29 April.

Panelist insight: Nomura analysts said: “We forecast that the BOT will leave its policy rate at 1% this year, supported by its clear forward guidance today. We had pencilled in the next cut for April but this was front-loaded by the BOT, as acknowledged by Mr. Nakornthab, who said at the briefing that ‘we just brought forward the cut to help the economy for a couple of months more.’ While we have flagged the possibility that the BOT could reduce the policy rate beyond 1.0%, this risk has likely diminished, with the BOT essentially signalling that the bar is high for further easing instead of keeping the door open.”

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