In a strategic move aimed at fostering economic growth, the Bank of Thailand has lowered its key interest rate from 2.50% to 2.25% as of Wednesday. This decision comes in light of ongoing pressures from both government officials and private sector groups advocating for a more accommodative monetary policy.
With the Thai baht experiencing an appreciation against the US dollar in 2024, the attractiveness of Thailand's significant tourism sector has been adversely affected. Continually pressed by the Pheu Thai, the nation's ruling majority party, the central bank has faced mounting calls to reduce borrowing costs.
The goal is to invigorate the sluggish Thai economy, which is still recovering from the impacts of the COVID-19 pandemic. The Bangkok Post reported on the central bank’s rate cut, highlighting the political undercurrents influencing monetary policy decisions. During the recent monetary policy committee meeting, a vote of 5 to 2 was cast to lower the one-day repurchase rate, which had been at a decade-high of 2.50% since September 2023.
This rate adjustment comes as the central bank continues to monitor inflation trends, targeting a consumer price index (CPI) range of 1% to 3%. Notably, in September, the CPI revealed a year-over-year increase of only 0.61%. Looking ahead, the Bank of Thailand has forecasted subdued inflation rates for the upcoming years, projecting figures between 0.5% and 1.2% for 2024 and 2025 respectively.
Fresh food inflation may see a rise due to potential weather fluctuations, suggesting that external factors could play a significant role in shaping future inflationary pressures. Despite the appreciation of the Thai baht—trading at 37 to the US dollar in April and nearing 32 by late September—the central bank remains optimistic about moderate economic expansion.
The recovery of the tourism sector is anticipated to be a principal driver of this growth, which the central bank estimates to be around 2.7% in 2024 and 2.9% in 2025. However, the central bank has issued a cautionary note against further interest rate reductions. They warned that excessively low rates could lead to financial imbalances, indicating a careful balancing act in their ongoing strategy to support economic recovery while maintaining financial stability..