Thailand’s central bank cut its benchmark interest rate for the first time in more than four years, a surprise move given it has long resisted the government’s calls to ease monetary policy.
The Bank of Thailand voted 5-2 to cut the one-day repurchase rate by a quarter of a percentage point to 2.25% at Wednesday’s meeting, as predicted by only five out of the 28 economists surveyed by Bloomberg. The last time it cut rates was in May 2020.
Two members of the Monetary Policy Committee called for the rate to be kept unchanged. The Thai rate had been kept at 2.5% since the fourth quarter last year.
The Monetary Policy Committee said inflation expectations remain within target. It expects core inflation this year at 0.5%.
The central bank had consistently signalled that it won’t easily yield to the government’s pressure to cut rates and boost the economy. BOT Governor Sethaput Suthiwartnarueput said late last month it’s crucial for central banks to have independence in setting monetary policy.
Just hours before the decision, Commerce Minister Pichai Naripthaphan called for a 50 basis point cut this year. The Federation of Thai Industries also reiterated its call for a 25 basis point reduction to ease the financial burden for businesses.
See also: Baht rally halts as Thailand campaigns for lower rates
The baht slipped to a session low against the dollar in response to the rate cut, trading at 33.384 per US dollar. Thai shares extended gains.
New Prime Minister Paetongtarn Shinawatra is continuing her predecessor’s agenda to wield more control over the central bank. While she hasn’t directly pushed for a rate cut herself, ministers in her cabinet have repeatedly called for lower borrowing costs, citing low inflation and the strength of the baht currency.
The local currency gained 14% last quarter, making the nation’s exports more expensive compared to its competitors.
While Southeast Asia’s second-largest economy grew at the fastest pace in five quarters in the April-June period, it continues to lag the expansion of its neighbours, hobbled by massive household debt and a manufacturing sector hurting from cheap imports coming mostly from China.
