Thai Central Bank Ready to Ease Again if Trade War Hits, Deputy Governor Says

Bangkok, Thailand – The Bank of Thailand has signaled its readiness to further ease monetary policy if the ongoing global trade war continues to drag on the economy, according to Deputy Governor Piti Disyatat. With U.S. tariffs threatening to deepen the slowdown, the central bank’s accommodative stance—marked by two consecutive rate cuts to a two-year low of 1.75%—reflects a growing concern over trade-related risks. As the economy faces a potential GDP contraction to 1.3% should tariffs escalate, investors are now weighing the central bank’s ability to navigate these headwinds.

Current Economic Outlook: A Fragile Recovery
Thailand’s economy grew by an estimated 2.5% year-on-year in the first quarter of 2025, a slowdown from the 3.2% growth in late 2024. However, the Bank of Thailand now projects full-year GDP to reach only 2%, down from earlier estimates. This revision assumes U.S. tariffs remain at their current 10% level. Yet, the specter of a 36% tariff looms large if negotiations to avert the July moratorium expiration fail. Such a scenario could slash growth to a dire 1.3%, with export-dependent sectors like automotive and electronics bearing the brunt.

Trade Risks and U.S. Tariff Uncertainty
Thailand is among the Southeast Asian nations most exposed to U.S. trade policies. The threat of a 36% tariff on key exports—delayed until July 2025—has created a precarious environment for manufacturers. Disyatat emphasized that the central bank’s outlook hinges on resolving this uncertainty, as higher tariffs could disrupt global supply chains and dampen investor confidence. Meanwhile, tourism—a critical economic pillar—has also shown signs of weakness, with declining visitor numbers exacerbating growth concerns.

Monetary Policy: The Limits of Accommodation
The Bank of Thailand’s April rate cut to 1.75% marked its second consecutive easing move, signaling a shift toward aggressive support. However, the Monetary Policy Committee (MPC) faced internal divisions, with a 5-2 vote underscoring concerns over limited “policy space.” Two members argued that further cuts risked overextending the central bank’s ability to respond to future crises. Disyatat acknowledged these constraints but stressed that decisions would remain “outlook dependent,” with additional easing possible if trade tensions worsen.

Exchange Rate Management: Stability Over Targeting
While the baht has appreciated slightly against the U.S. dollar, Disyatat clarified that the central bank aims to reduce volatility rather than target a specific exchange rate. This approach aligns with efforts to maintain competitiveness for exporters, though prolonged currency strength could complicate the recovery.

Fiscal Policy: Limited Room to Maneuver
Fiscal policy is another area of concern. With limited fiscal space, the government faces challenges in deploying stimulus measures to offset the trade slowdown. Disyatat urged policymakers to prioritize targeted support for vulnerable sectors rather than broad-based spending.

Inflation and Financial Risks
Headline inflation remains subdued, aided by falling global oil prices and government subsidies, staying below the central bank’s 1-3% target. However, Disyatat warned of structural risks: deteriorating credit quality in housing and corporate loans could strain financial stability if trade-related stress intensifies.

Conclusion: A Delicate Balancing Act for Investors
The Bank of Thailand’s accommodative stance and readiness to act underscore its commitment to cushioning Thailand’s economy from trade-war fallout. Investors should monitor two critical factors:
1. Trade Negotiations: A resolution to U.S. tariff disputes by July could stabilize growth around the 2% forecast, while failure risks a deeper contraction.
2. Monetary Policy Efficacy: With rates near record lows, further easing may have diminishing returns, leaving fiscal and structural reforms as critical complements.

The central bank’s projections and recent actions suggest that Thailand’s economy remains in a “wait-and-see” phase, dependent on external trade dynamics. For now, the accommodative bias provides a buffer, but investors must remain vigilant to downside risks. As Disyatat noted, the path forward hinges on “outlook-dependent” policies—a reminder that in an uncertain world, flexibility is the only constant.