DBS Group Research economist Chua Han Teng expects the Bank of Thailand (BoT) to keep its policy rate unchanged at 1.00% through 2026, after a second consecutive on-hold decision. The report highlights BoT’s preference for supporting Thailand’s uneven recovery while looking through transitory, supply-driven inflation. Growth forecasts were modestly adjusted and inflation is seen easing back toward the target range over time.

BoT holds rates to nurture recovery

"The Bank of Thailand (BoT) maintained its policy rate at a near four-year low of 1.00% at its June 24 meeting, marking its second consecutive unanimous decision to keep monetary settings unchanged. This stood in contrast to other Southeast Asian central banks, which have raised their policy rates to support their currencies and anchor inflation expectations due to the Iran war. We maintain our view that the BoT will remain on hold through the remainder of 2026, in line with fixed income market expectations."

"On one hand, the BoT assessed that the accommodative monetary policy stance is supporting the economic recovery, suggesting little impetus to ease interest rates further amid rising inflation. On the other hand, policymakers are likely to look through the temporary, supply-side-driven inflationary pressures, and refrain from hiking interest rates."

"The BoT’s June statement struck a balanced tone, underscoring a patient approach, in our view. While policymakers raised their 2026 GDP growth forecast to 2.3% (from 1.5%), they trimmed their 2027 growth projection to 1.8% (from 2.0%), with overall growth characterised as remaining low and uneven."

"The authorities also lowered their inflation outlook for 2026 and 2027 slightly, to 2.8% and 1.4% (from 2.9% and 1.5%), respectively. These reflect cautious expectations that inflation will remain above their 1-3% target in the near term due to the pass-through of energy and production costs, before retreating below the mid-point of their target range next year."

"The central bank assessed that the recent depreciation of the Thai baht against the US dollar was driven by a shift in the US Fed’s monetary policy stance, rather than by idiosyncratic factors affecting some regional currencies. In our view, the recent THB weakness came from relatively strong levels amid still-robust external position, which could support tourism and ease financial conditions for smaller exporters."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)