Thailand: Stable policy anchors short-end yields – DBS

DBS Group Research economist Chua Han Teng anticipates the Bank of Thailand (BoT) will maintain its policy rate at 1.00% through 2026, after unanimously deciding to keep rates steady on August 26. Teng points to subdued economic growth, limited private consumption, and modest inflation as factors supporting stable short-end Thai government bond yields, despite external currency fluctuations and supply-side inflation risks.

The BoT committee seems hesitant to alter interest rates, either upward or downward. Lower-than-expected headline inflation, falling below the BoT's 1-3% target, has dampened the pressure for tighter monetary policy. However, ongoing Middle East conflicts, energy cost transmission, and potential El Nino-triggered food inflation will keep officials vigilant, even as the economic impact of the supply-side shock recedes after Q1 2027.

The BoT highlighted the Thai baht's volatility against the US dollar due to external factors. While GBP/USD recovered from a six-day low, trading near 1.3600, the cautious market sentiment continues to support the US currency ahead of upcoming data and Fed Chair Kevin Warsh's speech. EUR/USD showed signs of recovery, climbing back into the mid-1.1600s after earlier losses, as the US Dollar gained modest strength.

Gold slipped to weekly lows around $4,570 per ounce, remaining cautious despite the overall market caution and uncertainty in the US Dollar's direction. Cryptocurrencies experienced an upward trend, with Bitcoin near $80,000 and Ethereum trading above $2,500. Oil prices, particularly diesel, revealed a stark contrast, with the US diesel crack spread surging above $100 per barrel for the first time.

Fed Chair Kevin Warsh is set to deliver his first Jackson Hole speech on Friday, sparking speculation about potential rate changes in September.