The Monetary Policy Committee (MPC) decided to maintain the policy rate at 1.50%, emphasizing an accommodative stance and acknowledging limited policy flexibility. Economic growth in Thailand has slowed due to tariff impacts, prompting a downward revision of the inflation forecast. Financial conditions remain challenging, particularly for SMEs. The MPC’s decision was not unanimous, with a 5-2 vote in favor of holding the rate, while two members advocated for a reduction to 1.25%.
The economy in Q3 is anticipated to decelerate, primarily impacted by the export sector, which is now feeling the effects of U.S. tariff measures. Additionally, industrial production has softened due to temporary disruptions. The MPC forecasts Thai GDP growth for the second half of 2025 to fall below 2% year-on-year.
· The MPC revised up its export growth forecast for this year significantly to 10%YoY (from 4.0%YoY in the June meeting), in line with actual data. However, the positive impact on the overall economy is limited, as the import growth forecast was also raised substantially to 10.2%YoY (from 5.3%YoY in the June meeting).
· The MPC assessed that the tourism sector and domestic demand have already slowed. Accordingly, it revised down its projection for foreign tourist arrivals in 2025 from 35 million in the June meeting to 33 million (Figure 1) and lowered its forecast for domestic demand growth from 2.1%YoY to 1.7%YoY. Nevertheless, the MPC expects both drivers to gradually improve going forward and has already incorporated the government’s new economic stimulus measures, scheduled for implementation in Q4, into this economic projection.
· The overall outlook for the Thai economy remains broadly unchanged from the June meeting. The MPC slightly revised down its GDP growth projections from 2.3%YoY and 1.7%YoY in the June meeting to 2.2%YoY and 1.6%YoY in 2025 and 2026, respectively.
MPC Decision and Economic Growth Outlook
The Monetary Policy Committee (MPC) voted 5 to 2 to keep the policy rate at 1.50%, with two members favoring a reduction to 1.25%. The majority views the current policy as accommodative, stressing careful timing due to limited room for further easing. The economy is expected to slow in the second half of 2025, mainly due to the export sector feeling the impact of U.S. tariffs and weaker industrial production. GDP growth projections were slightly revised down to 2.2% for 2025 and 1.6% for 2026. Domestic demand and tourism are slowing, with foreign tourist arrivals forecast reduced to 33 million for 2025.
Inflation and Deflation Risks
The MPC lowered its inflation forecast to 0% for this year, with expectations for inflation to remain below the target range through 2026. Headline inflation is projected to decline to 0.0% in 2025 and rise slightly to 0.5% in 2026 due to lower energy and raw food prices. Despite concerns, the committee does not consider Thailand in deflation, citing stable core inflation, stable product prices, and long-term inflation expectations remaining within range.
Financial Conditions and SME Impact
Financial conditions in Thailand remain tight, with overall credit contracting slightly amid weak demand. SMEs face particular challenges, with loan contraction and deteriorating credit quality, including higher non-performing loans. Export-oriented SMEs are hurt by the strong baht and low profit margins, especially as most do not hedge currency risks. The MPC emphasized maintaining accommodative monetary policy while carefully managing timing and effectiveness under limited space and heightened uncertainties.
