MPC cuts key policy rate to 2.25% aiming to ease public’s debt burden

The Bank of Thailand (BOT)’s Monetary Policy Committee (MPC) voted on Wednesday to reduce the policy interest rate by 25 basis points, from 2.50% to 2.25% per annum with immediate effect.

MPC secretary-general Sakkapop Panyanukul said the committee voted 5:2 to reduce the policy interest rate in a bid to help reduce the public’s debt burden.

The MPC has been holding the interest rate steady at 2.50% for over a year, despite the government and private sector calling for a rate cut to ease the interest burden on the public and businesses.

Sakkapop said the MPC agreed that the Thai economy had shown a tendency to expand in line with the committee’s previous assessments, while headline inflation is expected to gradually return to the target range by the year-end.

The MPC also forecast that the process of reducing household debt-to-income ratio was likely to continue, he added.

“The committee believes that a neutral stance on monetary policy remains appropriate given the economic and inflation trends,” said Sakkapop. “The majority of commissioners support a reduction of the policy rate by 0.25 percentage point per year, which would help alleviate some debt burden without hindering the process of reducing the household debt-to-income ratio, which would continue amid the projected slowdown in credit growth.”

He revealed that the two commissioners who voted to retain the policy rate argued that the previous rate was in line with the economic and inflation trends, and would help maintain the economic and financial stability in the long term, as well as maintain the capability of monetary policy against future uncertainty.

The MPC expects the Thai economy to expand by 2.7% year on year in 2024 and 2.9% in 2025, powered by key drivers including the tourism industry and private consumption as a result of the government's economic stimulus campaigns.

The committee forecast that the export sector will improve due to rising demand for electronic products, but the export and manufacturing of certain industries, including small and medium-sized enterprises, would still be limited by structural factors.

The MPC predicted headline inflation in 2024 and 2025 at 0.5% and 1.2%, respectively, and core inflation in 2024 and 2025 at 0.5% and 0.9%, respectively.

The committee supports the BOT's policy for financial institutions to assist borrowers through debt restructuring, which effectively addresses the debt burden and contributes to the process of reducing the household debt-to-income ratio, said Sakkapop.

“However, it is important to monitor the impact of declining credit quality on borrowing costs and overall credit growth, as well as its implications on economic activities,” he said. “This should be done within a framework of monetary policy aimed at maintaining price stability, while also ensuring sustainable economic growth and financial stability.”