Thailand holds rates, but more easing expected amid tariff risks

Thailand's central bank left its key interest rate unchanged on Wednesday, as expected, saying it was saving some policy ammunition if needed to support an economy expected to slow amid trade uncertainty and renewed domestic political turmoil.

The central bank said growth was stronger than expected in the first half of the year, in part because of frontloading of export orders to beat US tariffs, but noted the outlook was uncertain and it was ready to cut rates as needed.

The Bank of Thailand's monetary policy committee voted 6 to 1 to keep the one-day repurchase rate at 1.75%, the lowest in two years. The BOT said its rate cuts in February and April were providing some support to the economy.

"The Thai economy is projected to slow down going forward, as a result of increasing risks to merchandise exports stemming from US trade policies as well as geopolitics and domestic factors," it said in a statement.

The stronger-than-expected start to the year saw the BOT lift its central-case growth forecast to 2.3% for 2025, almost matching last year's 2.5% and more optimistic than some market analysts.

Assistant Governor Sakkapop Panyanukul told a press conference that the committee was ready to "react if the economy is slower than expected."

"The BOT's tone remains dovish, pointing to room for further accommodation in the coming months," said Lavanya Venkateswaran, senior ASEAN economist at OCBC.

"Our baseline is for another 25 basis point cut in the second half as downside risks to growth remain rife from perceived domestic political uncertainties and U.S. tariff risks," she said.

Capital Economics said it expected 50 basis points of rates cuts before the end of the year.

Thailand faces a 36% U.S. tariff on its exports, a key driver of growth, if it fails to negotiate a reduction before a moratorium expires in July. A tariff of 10% has been set for most nations while the moratorium is in place.

The baht was largely unchanged against the U.S. dollar after the decision to hold rates steady, which had been expected by 21 of 33 economists in a Reuters poll.

Thailand's economy has struggled with weak consumption, soaring household debt, slowing tourism, trade uncertainty and potentially steep U.S. tariffs.

The BOT also lowered its forecast for tourist arrivals, a strng domestic growth driver, to 35 million this year.

Adding to the challenges is a fresh round of political turmoil that could bring down Prime Minister Paetongtarn Shinawatra or the coalition government led by her Pheu Thai party.

Sakkapop said that the political issues had not been factored into its forecasts, and the central bank would wait to see developments.

Meanwhile, Thai stocks and the baht were largely unchanged on Wednesday after the country's central bank stood pat on rates, as expected, while other Asian currencies and equities rose as easing Middle East tensions lifted sentiment. The currency was trading at 32.623 per dollar after the Bank of Thailand (BoT) held its key one-day repurchase rate steady at 1.75%, following two straight cuts, as it looked to preserve limited policy space amid persistent trade uncertainty and deepening political turmoil. The central bank said its monetary policy remained accommodative to support the economy and that it was ready to adjust interest rates if needed. "BoT's tone remains dovish, pointing to room for further accommodation in the coming months. Our baseline is for another 25 basis point cut in 2H25 as downside risks to growth remain rife from perceived domestic political uncertainties and U.S. tariff risks," said Lavanya Venkateswaran, senior ASEAN economist at OCBC. The country has been gripped by political uncertainty after the Bhumjaithai Party, fresh off its exit from the ruling coalition, said it would pursue a no-confidence motion against Prime Minister Paetongtarn Shinawatra and her cabinet, piling pressure on the embattled government.

Agencies