Archive

Thailand's Easing Limits Tested

• Thailand's central bank delivered an expected 25bp rate cut to 1.25%, the fifth since October 2024, as growth slows to 1.5% in 2026, suggesting limited effectiveness of further easing given constrained credit transmission.
• Headline inflation revised sharply to -0.1% for 2025 and 0.3% for 2026, well below target but stable in core measures. Further cuts depend on whether the expected return to the target range by mid-2027 materialises.
• Limited policy space and baht appreciation create competing pressures on future cuts. The consensus sees two additional reductions possible through 2026, but the effectiveness is questioned if credit channels remain impaired.

Thailand Defies Consensus with Policy Hold

• BOT holds rate at 1.50% in a 5-2 vote, surprising 70% of economists who expected a 25bp cut, citing limited policy space and timing concerns amid economic uncertainty.
• Economy faces 2H25-2026 slowdown from US tariff impacts, with exports declining and GDP growth revised to 2.2% (2025) and 1.6% (2026) despite a front-loaded boost.
• Credit contraction continues affecting vulnerable SMEs while inflation at -0.72% remains below target, but the dovish new governor signals potential future easing.

Thailand Cuts Rates Amid Trade War

• The BOT unanimously cut rates by 25bp to 1.50%, the fourth cut in 10 months, amid US trade policy headwinds and SME vulnerabilities.
• Growth forecasts were maintained at 2.3%/1.7% for 2025/2026 despite the front-loaded export boost fading; so further easing is likely by year-end.
• An accommodative policy stance addresses subdued inflation (-0.7% July) and negative credit growth while preserving financial stability.

Tuning Tariff Impact Estimates

• President Trump’s tariff policy seemingly follows a random walk with a drift towards deals. Path dependency raises risks and uncertainty around his volatile whims.
• Corporate avoidance measures have spared their customers from most of the pain, but Vietnam’s deal as a template could belatedly bring more of the pain to bear.
• We assume most countries stay at 10%. The impact of others rising to 20% may be smaller than the anti-avoidance hit, with the total now worth less than 0.4% to UK GDP.

By Philip Rush