Thailand's central bank slashed its key interest rate by 25 basis points on Wednesday, marking the first cut in more than four years and a move long encouraged by the government to shore up a sluggish economy.

The Bank of Thailand's monetary policy committee voted 5-2 to reduce the one-day repurchase rate to 2.25 percent, after the rate had been hiked to a decade-high of 2.5 percent since September 2023.

The decision came as the Southeast Asian country's headline inflation remained below the lower end of its target range of 1 percent to 3 percent and is expected to gradually return to the target range by the end of 2024, the central bank said in a statement.

Secretary of the policy committee Sakkapop Panyanukul said most members voted to cut the policy rate to ease the debt burden on borrowers, adding that the lower policy rate would not hinder debt deleveraging given the anticipated slowdown in loan growth and would remain neutral and aligned with the economy's potential.

However, the recovery has been uneven across sectors, with structural impediments putting pressure on merchandise exports, manufacturing production, and small- and medium-sized enterprises.

The Thai economy is expected to grow at rates similar to earlier forecasts, with projections of 2.7 percent in 2024 and 2.9 percent in 2025, driven by the vital tourism sector, private consumption on the back of government stimulus measures and improved exports due to higher demand for electronics, Sakkapop told a news conference.

Headline inflation is projected to stand at 0.5 percent in 2024 as raw food prices are expected to climb due to volatile weather conditions, while energy prices are likely to rise due to base effects, he said.