Thailand Set to Cut Rate Again As Tariff ‘Storm’ Darkens Outlook

Thailand’s central bank is poised to slash its policy rate to 1.75% on April 30, 2025, marking the latest in a series of accommodative moves aimed at cushioning the economy against escalating trade headwinds. The Bank of Thailand (BoT) faces a precarious balancing act: stimulating growth amid U.S. tariff-driven export declines while preserving monetary policy flexibility for future shocks. Analysts warn that the April cut could be the first of several in 2025, as global trade tensions and domestic vulnerabilities weigh on Thailand’s already fragile recovery.

The Tariff Storm Intensifies

The U.S. tariff regime has emerged as the single greatest threat to Thailand’s export-dependent economy. Key developments in early 2025 include:
- March 12: A 25% tariff on Thai aluminum imports disrupted manufacturing supply chains, raising production costs for sectors like automotive and construction.
- March 31: A U.S. Trade Office report highlighted “unfair” Thai trade practices, including restrictive customs rules and agricultural barriers, setting the stage for broader punitive measures.
- April 2: A landmark 36% tariff on Thai goods—among the highest imposed on any major Asian economy—targeted automotive components, electronics, and processed foods.

These measures threaten to erase years of export growth. U.S.-bound shipments, which surged by 100% since 2019 to $5 billion monthly, now face a potential 3% contraction in 2025, per InnovestX Securities. The Bank of Thailand has already revised its GDP growth forecast to below 2.5%, with further downgrades likely as tariff impacts materialize.

Monetary Policy in a Liquidity Trap

The BoT’s April rate cut follows a February reduction to 2.00%, signaling a shift from gradual easing to proactive support. Analysts at SCB Economic Intelligence Center and CIMB Thai Bank anticipate two to three more cuts by year-end, potentially lowering rates to 1.25% or even 1%. However, the central bank’s room for maneuver is narrowing.

The SET Index has underperformed regional benchmarks amid tariff fears, falling 8% since early 2025. Even sectors traditionally insulated from external shocks, such as finance and telecom, face risks. For example, ADVANC (Thailand’s largest telecom firm) has seen its stock price drop 12% year-to-date, reflecting broader market pessimism.

Sectors in the Crosshairs

The auto industry, a pillar of Thailand’s manufacturing sector, is among the hardest-hit. U.S. tariffs on automotive components have compounded existing challenges: Thai auto production relies heavily on outdated Japanese and Korean factories for petrol vehicles, while Chinese-backed electric vehicle (EV) projects have failed to deliver promised intellectual property transfers.

Agriculture, too, is vulnerable. Outdated farming practices and environmental degradation—such as air quality in rural areas worse than Beijing’s—have eroded competitiveness. Meanwhile, the “phantom export” problem persists: data shows Thai exports of data-processing equipment to the U.S. doubled since 2019, while imports of Chinese electrical parts rose 180%, suggesting inflated export figures due to transshipment.

Geopolitical Tightrope

Thailand’s dual strategy of appeasing the U.S. while deepening ties with China has backfired. The deportation of 40 Uyghur refugees to China in late 2024 drew condemnation from Western allies, exacerbating trade tensions. Meanwhile, Thailand’s trade deficit with China—driven by surging imports of electrical goods—has widened, raising fears of overreliance on Beijing.

Risks and Investment Considerations

Investors face a complex landscape:
- Upside: Resilient sectors like consumer goods (CPALL), power generation (GULF), and telecom (ADVANC) may benefit from low rates and stable domestic demand.
- Downside: A liquidity trap could materialize if credit growth stagnates, while inflationary pressures from a weaker baht ($1 = 34 baht) may force the BoT to pause easing.

The narrowing yield gap (Thai bonds at 3.2% vs. U.S. Treasuries at 4.5%) reflects declining confidence in the baht, adding to foreign capital outflows.

Conclusion: A Delicate Dance

Thailand’s April rate cut underscores the fragility of its economic model. With U.S. tariffs likely to reduce 2025 GDP by at least 0.5%, and the central bank’s terminal rate potentially dipping to 1%, investors must navigate a landscape of structural reforms and geopolitical risks. While sectors like consumer staples and utilities may offer refuge, the broader economy remains hostage to external forces.

The path forward demands more than monetary stimulus. Thailand must address systemic inefficiencies—agricultural modernization, labor reforms, and transparent trade practices—to avoid prolonged stagnation. Until then, the storm clouds over its export-driven economy will linger.

Data sources: Bank of Thailand, InnovestX Securities, SCB EIC, CIMB Thai Bank, Bloomberg.