The Bank of Thailand lowers its rates in the face of economic slowdown

The Bank of Thailand (BoT) has lowered its interest rate to 1.25% on Wednesday, December 17, 2025, as economic risks accumulate.

The Thai central bank has unanimously decided to lower its benchmark interest rate by 25 basis points, bringing it down from 1.50% to 1.25% with immediate effect, and announced that it will continue to ease its monetary policy to support economic growth.

The Monetary Policy Committee (MPC) of the central bank is seeking to support an economy weakened by several factors, including political uncertainty, the strengthening of the baht and US tariffs.

This is the fifth rate cut since October 2024, with rates reduced by a total of 125 basis points during this period.

Thirteen of the 23 economists surveyed by Reuters expect the key rate to fall to 1.00% in the first quarter of 2026.

The other ten expect it to remain at 1.25%.

"The MPC assessed that Thailand's economic outlook showed a more pronounced slowdown compared to the previous meeting," said Sakkapop Panyanukul, MPC Secretary,in a statementreleased after the meeting.

The National Economic and Social Development Council (NESDC) expects Thailand's GDP growth to slow to 1.7% next year, down from 2% this year, according to estimates.

The economy grew only 1.2% year-on-year in the third quarter, down from 2.8% in the second quarter.

Growth in the fourth quarter is expected to be less than 1%.

The BoT expects the economy to continue slowing in 2026 and 2027 compared to the first half of 2025.

It expects growth to be 1.5% in 2026, improving to 2.3% in 2027, but remaining below potential and well below the performance of other Southeast Asian countries.

In 2026, the economy is expected to slow down compared to this year, largely due to weaker private consumption, along with more moderate income growth, as well as a decline in merchandise exports due to US tariffs.

Export growth is expected to slow to 0.6% in 2026, down from 12% this year, largely due to anticipation effects and a high base.

Tourism remains a key driver of the Thai economy, with 33 million foreign visitors expected in 2025, 35 million in 2026, and 36 million in 2027, according to the statement.

However, it remains insufficient on its own to revive growth, despite an increase in spending per visitor despite a more moderate arrival volume.

See: Decline in tourism in Thailand: only 32 million visitors in 2025

Low inflation, but credit continues to contract

Customers in a supermarket in Thailand.

Demand-driven inflationary pressures are limited, given that economic growth remains below its potential, the MPC said.

The BoT expects inflation to remain below its target of 1 to 3% in the longer term, with forecast averages of -0.1% for 2025, 0.3% for next year and 1.0% for 2027.

Interest rates across the banking system and financial markets have fallen, in line with previous reductions in key rates, which has helped reduce financing costs and ease the debt burden on businesses and households.

But credit continues to contract and the credit quality of vulnerable borrowers continues to deteriorate.

Small businesses are facing liquidity problems due to both limited access to credit and the strengthening baht, the MPC added.

On Wednesday afternoon, the Thai currency was trading at around 31.53 to the US dollar, a level close to its four-year high and virtually unchanged from the previous day.

This Friday, December 19, 1 euro is worth 36.79 baht and 1 US dollar is worth 31.44 baht, levels that suggest the rate cut has not yet had a significant impact on the baht's trajectory.

See: Thai baht (THB) exchange rate: daily rate against the euro

The baht has appreciated by 8.2% against the dollar since the start of the year.

At the last MPC meeting in October, the appreciation rate was only 3.2%.

"The central bank is monitoring the baht more closely and has strengthened measures to manage exchange rate fluctuations," said Mr. Sakkapop.

See: The spectacular rise in the Thai baht worries the Central Bank

Serious concerns about economic prospects

Cranes and shipping containers in Bangkok port. Photo: Bangkok Post.

Nattaporn Triratanasirikul, Deputy Managing Director of Kasikorn Bank's research center (K-Research), said the unanimous decision to cut the rate reflects the committee's concerns about the country's economic prospects.

“As Parliament has already been dissolved, fiscal policies and budgetary expenditures will progress slowly and could be disrupted under the interim government,” she said.

“The second phase of the ‘Khon La Khrueng’ co-payment program, which was to be launched to stimulate domestic consumption, has now been suspended.”

Ms. Nattaporn said it was time for monetary policy to play a more important role in reviving a sluggish Thai economy.

K-Research expects economic growth to slow to 1.6% in 2026, down from an estimated 2% this year.

The think tank expects the slowdown in exports and weakness in domestic consumption to weigh heavily on the economy next year.

Exports are expected to contract by 1.2% next year, after supporting Thai growth in 2025 with an 11% increase, thanks to anticipated shipments before the US tariffs come into effect.

The conflicts between Thailand and Cambodia have led K-Research to predict that the border between the two countries will remain closed for the first six months of 2026.

This could lead to a contraction in Thai exports to Southeast Asia compared to the previous year, said Ms. Nattaporn.

In a context of political uncertainty, a strong baht and global slowdown, monetary policy now appears to be one of the last levers available to Thailand to support an economy under pressure.

See also:

In the face of global shocks, Thailand accelerates its economic transformation

Thailand-Cambodia crisis: alert on a major economic impact

Thailand's welfare economy exceeds 670 billion baht

Thailand's economy "on the brink"

Thailand's new plan for tourism and economic recovery

Source: Bangkok Post