The Bank of Thailand (BOT) decided to cut the policy interest rate in December 2025 to 1.25% per annum. This followed six Monetary Policy Committee (MPC) meetings deliberating whether to lower the rate as requested by the government. The final outcome was three rate cuts, two holds, and before the end of 2025, a fourth reduction of 0.25%, bringing the rate down to 1.25%.
The BOT explained the latest cut was due to a clear slowdown in the Thai economy, marked by weak consumption, impacted exports, and a still-challenged industrial sector. Therefore, it sought to ease interest rates to support recovery, relieve debt burdens on vulnerable groups such as SMEs and individuals, and guard against deflation risks.
In fact, the BOT likely anticipated that economic growth in 2026 would be slower than expected and possibly below 2%, due to declining consumption and industrial weakness. This was also reflected in persistently low inflation, indicating weak demand pressure from below-potential economic growth. Meanwhile, household and vulnerable groups continued facing difficulties accessing credit and liquidity, increasing non-performing loans (NPLs).
Seeing the economy unable to advance, the BOT through the MPC cut interest rates to ensure financial conditions support recovery and complement other government measures. At the same time, it emphasized maintaining policy space by reserving rate cuts for appropriate timing to maximize transmission efficiency to the economy.
In reality, the strategy of holding back rate cuts for the "right moment" often delays action beyond when it is needed, despite many reasons to ease financial conditions throughout 2025. It is fair to say the BOT contributed to Thailand’s economic difficulties, especially during the previous Prime Minister Srettha Thavisin’s administration, which recognized growth issues and sought rate cuts but faced resistance from BOT leadership.
Now, at the start of 2026, various economic agencies predict that Thailand and its people will face greater hardships than the previous year. Importantly, economists from multiple institutions debate that even if the BOT cuts rates to zero, it will not prevent the gradual decline of economic sectors over the next 8-12 months, simply because it is too late to be effective.
Thus, interest rates are no longer the key factor, especially for buying time for economic adjustment. This is evident from the last rate cut in 2025, which had no effect on the exchange rate. On the contrary, the baht appreciated to 31.25 baht per US dollar, severely impacting the export sector.
The only way to accelerate Thailand’s economic recovery now is to "depreciate the baht" to about 35-36 baht per US dollar. The idea of depreciating the baht sounds drastic and may face strong opposition because imported goods like energy would become more expensive, raising raw material and machinery costs.
However, a controlled depreciation of the baht tends to help exports, tourism, and GDP growth if not done too rapidly or excessively. Theoretically, exports improve as Thai goods become cheaper to foreigners, and exporters’ baht-denominated profits increase. Though in practice, effects may be muted because many Thai products rely on imported inputs and global trade is slowing. Tourism benefits more clearly and quickly, as tourists perceive better value, with cheaper hotels and food compared to competitors, attracting more foreign investment.
Regarding GDP, positive effects are certain from improved exports and tourism. Inflation, which the BOT tries to keep between 0-3%, remained low due to delayed rate cuts. Kasikorn Research Center forecasts 2025 inflation to be slightly negative or near zero (-0.1 to 0.0%), and 2026 inflation to rebound modestly to 0.4%, still very low.
Why don’t central banks worldwide openly advocate for weaker currencies? Because it risks accusations of currency manipulation and volatility in capital flows. The Bank of Thailand thus chooses to "manage volatility without targeting a specific exchange rate level."
However, econometricians from Harvard and the Ministry of Finance suggest that Thailand’s strategically appropriate baht level should be about 34.5-36 baht per US dollar (with an optimal equilibrium around 35 ± 0.5 baht). This is not a fixed peg but a range to maintain to offset Trump-era tariffs, support GDP, and enhance competitiveness.
Rough calculations show that facing a 10% tariff, an 8-10% baht depreciation is needed to cushion the impact. The 35-36 baht range supports exporters without shock, but if the baht weakens beyond 38 baht, macroeconomic stability and inflation risks rise immediately.
The key point is that the exchange rate is not the true measure of competitiveness but rather "breathing space." The baht should not be so strong as to squeeze businesses nor so weak that it discourages investment and upgrading. The currency is a supplementary tool, with economic structure as the main instrument. In the "Trump 2.0" world, managing the baht means buying time for Thailand’s economy to adjust.
If the newly elected government fails to implement serious policies in 2026, Thailand will face structural difficulties—not just a temporary slowdown or a collapse year, but a re-ranking in the global view. In that scenario, the baht could depreciate to 37-38 baht unintentionally, due to markets losing confidence in growth potential and lacking a compelling growth story.
What is most concerning now is Thailand’s lack of a positive narrative beyond sub-2% growth and unclear structural reforms. The priority over the next 12-18 months should be to maintain the baht within 35-36 baht as a buffer, while accelerating technology adoption, industrial upgrading, and sending clear policy signals to restore global investor confidence.