The Bank of Thailand (BOT) unexpectedly cut its policy rate by 25bps to 2% during its first meeting of 2025. The decision, supported by six out of seven Monetary Policy Committee (MPC) members, utilised existing policy space to pre-emptively guard against downside growth risks. Following last week’s data showing lacklustre 4Q24 growth pick-up, we thought that it was just a matter of time that interest rates will be lowered, particularly given potential external risks facing the Thai economy in 2025. We forecast another BOT rate cut of 25bps to 1.75% in the remainder of 2025.With the BOT signalling a high bar for the next rate cut, the timing would be dictated by the greater challenges arising from the actual implementation of tariffs on various US’s trading partners, including Thailand, and possible retaliation.
Accompanying its rate cut, the BOT projects slower than anticipated 2025 economic growth of 2.6%(DBSf: 2.6%), down from 2.9% forecasted during its December 2024 meeting. Policymakers see structural impediments in manufacturing production and competition from imported goods, and heightened risks from the trade policies of major economies, despite support from domestic demand and tourism. While muted inflation is evolving in line with expectations, financial conditions remain tight. The BOT will monitor three key factors: 1) manufacturing production outlook, 2) impact of major economies’ trade policies on the economic outlook, and 3) the outlook for loan growth and credit quality, and their implications for the economy. We also see considerable downside growth risks from escalating US tariff threats. Thai exports are vulnerable to potential US’s reciprocal tariffs, given the high tariff differential with the US, Thailand’s position as the US’s 11th largest goods trade deficit partner, and the increase in US’s trade deficit with Thailand over the years (see ‘Thailand chartbook: Gradual recovery faces rising external threats’). 
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