Thai baht rally may fade on dovish central bank, analysts say

The Thai baht has strengthened 0.9% so far in August, making it the second-best performing currency among Southeast Asian peers. Analysts warn that the rally may be short-lived, as the central bank is likely to maintain a dovish policy stance to support an economy burdened by high oil prices. The baht has reached 33.50 per US dollar so far, and may dip to 34.4 per dollar by the end of 2026, according to BNP Paribas.

MUFG Bank predicts a weakening of about 4% in the fourth quarter due to higher oil prices impacting Thailand's trade balance. The country's current account shifted to a US$17.7 billion deficit last quarter, up from a US$1.4 billion surplus in the previous period, driven by increased energy imports. The Bank of Thailand is projected to keep the borrowing costs steady at 1% during its August 26 meeting, aiming to support growth.

However, this dovish stance could put pressure on the baht, as US yields remain elevated. Thailand's trade balance may remain in deficit in the coming months, as higher oil prices remove a key support factor for the currency. This, combined with rising energy costs and geopolitical instability in the Middle East, is straining the overall economy.

The fiscal situation is also a concern, with plans to raise US$12 billion in new borrowings to fund stimulus and energy transition initiatives raising worries about the country's public debt ceiling, which is set at 70% of gross domestic product. Thailand's interest rate remains the lowest among emerging Asian nations, but peers like Indonesia and the Philippines have increased rates to combat inflation and bolster their currencies.

This widening interest rate gap with the US could weaken the baht in the second half of 2026, even though the seasonal tourism boost is expected to provide some short-term relief.