Bank of Thailand Flags Investment Slump and Warns on Limited Interest Rate Leeway

Central bank cautions that scope for further monetary easing is restricted amidst global economic headwinds and persistent low investment

 

The Bank of Thailand (BOT) has expressed growing concern over persistently low investment levels, warning that its capacity for further monetary policy intervention is becoming increasingly constrained.

 

At the recent Monetary Policy Forum 1/2025, central bank officials emphasized that with the benchmark interest rate already at a low 1.75% following three rate cuts since late last year, the effectiveness of additional reductions would be limited.

 


"The stimulative effect of further reductions will be marginal, and the economic transmission will gradually weaken," said Piti Disyatat, BOT's Deputy Governor for Monetary Stability. "Maintaining policy space is crucial to address various potential uncertainties and adverse economic scenarios that may materialize."


 

The central bank identified U.S. trade policies as the primary external pressure on Thailand's economy, contributing to both domestic and global economic slowdown. Officials stressed the importance of preserving policy ammunition to cushion against potential economic "shocks" from abroad.

 

While Thailand's economy is expected to continue growing in the first quarter of 2025, the BOT projects growth moderation from the second quarter onward, though a recession is not currently anticipated.

 

Pranee Sutthasri, Senior Director of the BOT's Macroeconomic Department, noted that recent dialogue and temporary tariff reductions between the U.S. and China represent "a positive development" that could benefit both global and Thai economies, particularly through improved exports.
  



 

The prolonged period of lackluster investment was highlighted as a key factor behind the recent deceleration of Thailand's economic potential, which has now fallen below 3%.

 


"The world is entering a new phase that demands adaptation," said Sakkapop Panyanukul, Assistant Governor of the BOT's Monetary Policy Group. "Failure to adapt will further erode long-term potential growth."


 

The central bank emphasized that collaborative efforts involving government policies are essential, as the current economic challenges significantly affect manufacturing and export sectors.

 

Officials clarified that Thailand's economic challenges are not primarily related to the cost or availability of credit, but rather to increasing borrower risk.

 


"The challenge of accessing credit is not primarily about the volume or price of loans," explained Sakkapop. "The core issue lies in credit risk, necessitating government intervention to help mitigate these risks."


 

The BOT acknowledged its limitations in targeted interventions, as most of its tools are designed to manage broader macroeconomic conditions rather than support specific sectors.

 

Despite currently low inflation figures, the BOT affirmed its commitment to maintaining its 1-3% inflation target range.
  



 

Surach Tanboon, Senior Director of the BOT's Monetary Policy Department, explained that the current low inflation is attributed to temporary factors such as lower global energy and commodity prices rather than structural price pressures.

 


"No central bank would opt to lower its inflation target based on temporary figures, as this would erode credibility," he stated. "We do not want to adjust the target simply to chase short-term figures."


 

Regarding the proposed G Token, which would allow the public to purchase government bonds for long-term investment, the BOT expressed preference that it not be adopted as a medium of payment.

 

Sakkapop noted that while this instrument may have a role in government fundraising, a robust and secure system underpinned by appropriate legislation would be crucial to fostering public trust.

 

Thailand has experienced "low and stable inflation" for over 20 years, with inflation rapidly returning to target range even after external shocks such as the COVID-19 pandemic or the war in Ukraine.

(2025/05/15-00:00)