Thailand holds rates at 1% as growth stays weak and inflation risks rise

On Wednesday, the Bank of Thailand maintained its key interest rate at 1.00%, aligning with analysts' predictions. The Monetary Policy Committee (MPC) unanimously decided to retain the policy rate, balancing a sluggish domestic recovery against mounting inflation risks stemming from elevated energy costs and the El Niño weather pattern. The central bank reiterated that an accommodative monetary policy, coupled with strategic financial interventions, was still bolstering the economic resurgence amid uneven growth.

The Bank of Thailand anticipates Thailand’s economy will expand by 2.4% in 2026 and 2.1% in 2027, spurred by stronger-than-anticipated merchandise exports and private investment connected to the technology and artificial intelligence (AI) sector. The central bank also predicts a decline in foreign tourist arrivals due to higher oil prices, while small and medium-sized enterprises (SMEs) continue to grapple with fierce competition and challenges in adapting to evolving circumstances.

Headline inflation is expected to average 2.1% in 2026, followed by a reduction to 1.3% in 2027. The central bank foresees a gradual increase in inflation throughout the remainder of the year and into early 2027, primarily driven by energy costs and El Niño, before cooling as base effects and weak domestic demand temper price growth. Core inflation is projected at 1.2% this year and 1.3% the following year.

The Bank of Thailand observed that the baht has depreciated against the U.S. dollar as market expectations have shifted toward a more restrictive U.S. monetary policy trajectory. The rise in oil prices due to tensions in the Middle East has also intensified currency pressures, while Thai government bond yields have marginally increased alongside global yields.

Despite keeping interest rates steady, the MPC affirmed its commitment to closely monitor the inflation outlook, associated risks, and the implications of low interest rates on long-term macro-financial stability. The committee stated that the current policy rate is suitable to facilitate the recovery, leaving future decisions contingent on the trajectory of growth and inflation risks rather than indicating a clear path for subsequent rate adjustments.