Thailand cuts rates again, could face recession as US tariffs loom

Thailand’s central bank has lowered its key interest rate by 0.25 percentage points for the second straight meeting, aiming to support the nation’s faltering economy amid mounting trade tensions with the United States. The new rate of 1.75% is now the lowest in two years, reflecting growing concern over the country’s economic trajectory. This decision, made by a 5-2 vote of the Bank of Thailand's monetary policy committee, comes on the heels of a similar rate cut in February.

The central bank also downgraded its economic growth forecast for 2025 to just 2.0%, citing uncertainty over prolonged U.S.-Thailand trade negotiations and the persistence of steep U.S. tariffs. In a more severe scenario, where trade tensions escalate further and tariffs increase, growth could sink as low as 1.3% this year. Even under its baseline scenario, growth in 2026 is projected to reach only 1.8%, or potentially drop to 1% if conditions worsen.

Thailand has been especially vulnerable to U.S. President Donald Trump’s tariff measures, with a potential 36% tariff looming if no deal is reached by July. The central bank emphasized that U.S. trade actions and retaliatory responses from other global powers will significantly reshape the world’s economic and financial landscape—changes that are only just beginning and carry deep uncertainty.

Assistant Governor Sakkapop Panyanukul acknowledged the limitations of monetary policy in this environment, noting there is still room for action but not much. "The monetary policy stance has changed. We are now in a period of easing," he stated. He also warned that Thailand could be on the verge of a technical recession—defined as two consecutive quarters of negative growth.

The central bank’s next rate-setting meeting is scheduled for June 25.

Economically, Thailand has been underperforming compared to its regional peers, growing only 2.5% in 2024. The Bank of Thailand also lowered its inflation forecast for 2025 to 0.5%—well below the target range of 1% to 3%—and reduced core inflation expectations to 0.9%.

Exports are expected to grow by just 0.8% this year, down sharply from the previous 2.7% projection. Tourism, a key pillar of the Thai economy, also looks set to take a hit, with the bank cutting its forecast for foreign arrivals from 39.5 million to 37.5 million.

While the Thai baht gained slightly following the rate cut, rising 0.4%, and the main stock index (.SETI) rose 2%, analysts believe further rate cuts are unlikely in the near term. Miguel Chanco of Pantheon Macroeconomics noted that the monetary policy committee is likely to adopt a cautious, wait-and-see approach given the ongoing tariff uncertainty.