SCB Economic Intelligence Center (SCB EIC) has revealed that the Monetary Policy Committee unanimously decided to reduce the policy interest rate from 1.50% to 1.25%, aiming to ease financial conditions amid a clearly slowing economy and rising risks.
The primary objectives are to alleviate debt burdens for vulnerable groups, enhance the effectiveness of financial measures, and maintain policy flexibility within existing constraints, all while considering long-term financial system stability.
The committee assessed that the economy is likely to slow due to weakening private consumption alongside income, exports impacted by the United States’ import tariffs, and additional risk factors such as flooding in the South—which could dampen economic activity into early next year—and political uncertainty potentially delaying the 2027 budget.
Headline inflation this year is forecast to average negative and remain below target in the coming year, due to falling global energy prices and government subsidies, though the risk of deflation is not deemed significant.
On financial conditions, credit continues to contract from subdued domestic demand and cautiousness among financial institutions. Meanwhile, the baht has strengthened, outperforming regional currencies, following U.S. monetary policy signals and Thailand-specific factors. The committee cited three key monitoring points: potential further U.S. tariffs, credit growth and baht appreciation, and deflation risks.
The research center noted that the committee’s latest communication was more dovish, emphasizing downside risks to the economic outlook. The outlook for 2027 is a recovery, though still below potential. There is a new focus on closely watching deflation risks amid domestic demand pressures and concern over the baht’s relative strength, including considering measures to ease these pressures—language unusual for typical statements.
Regarding interest rates, the research center projects another policy rate cut is possible in the first half of next year, given that Thailand’s economy is expected to remain below potential. GDP is forecast to grow 1.5% in 2026 and average just 2.0% during 2025–2027 period, significantly lower than past averages.
Persistently low inflation could erode business profits and household incomes, heightening debt deflation risks. Thus, further monetary easing should lower financing costs, reduce debt burdens, and help nudge inflation upward. The policy rate is expected to fall to 1.0% in the first half of 2026.
