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Central bank to lower interest rate as recovery builds

The Bank of the Lao PDR (BOL) has lowered its 7-day basic interest rate to 9 percent per year, offering businesses and households some relief as inflation continues to ease.
This is the third reduction in 2025. The rate was cut from 10.5 to 10 percent in March, and again to 9.5 percent in June.
The basic interest rate is the short-term lending rate in kip used by the BOL when providing liquidity to commercial banks. It is one of the main tools for managing borrowing costs and overall monetary conditions.
Governor of the Bank of the Lao PDR, Mrs Bounkham Vorachit, chaired the Monetary Policy Committee meeting where the decision was approved, with senior members of the bank also in attendance.
The lower rate is expected to reduce financial pressure, make borrowing more affordable, and encourage businesses and consumers to spend and invest, helping to drive domestic growth.
According to the World Bank, interest rates play a critical role in shaping economic activity. Cheaper credit can stimulate spending and job creation, but lower rates may also weaken the value of the national currency and raise the cost of imports.
The latest cut follows a sharp drop in inflation. The inflation rate averaged just over 10 percent in the first seven months of 2025, but fell from 8.3 percent in May to 5.3 percent in July.
This marks a clear turnaround from just two years ago, when Laos was facing one of its most difficult economic periods in decades.
After the COVID-19 pandemic, inflation soared to 41 percent in February 2023, with the spiralling price of fuel, food and daily essentials placing a heavy burden on families and businesses.
The kip has again weakened slightly, falling by 0.11 percent against the US dollar and 1.19 percent against the Thai baht compared to May. The gap between commercial bank exchange rates and the broader market has widened to more than 1 percent.
M2 money supply grew by almost 12 percent year-on-year, while foreign reserves are now sufficient to cover 4.9 months of imports, a level the World Bank considers a healthy short-term buffer.
Alongside the interest rate cut, the central bank will maintain its managed floating exchange rate within a 6.5 percent band. It will also strengthen foreign currency management, centralise government deposit accounts, improve payment systems, and expand credit support for businesses.
Despite the more positive outlook, the bank warned that risks remain. Global uncertainties include volatile oil and gold prices and upcoming changes in United States interest rates.
Laos continues to rely heavily on imports, struggles to secure stable foreign currency earnings, and carries a high level of external debt, which remains a serious challenge for the economy.

By Phonepaseuth Volakhoun
(Latest Update August 22, 2025)