Thai central bank holds key rate, forecasts slower growth and higher inflation
The Bank of Thailand logo is pictured in Bangkok, Thailand, January 30, 2025. REUTERS/Chalinee Thirasupa
BANGKOK, April 29 : Thailand's central bank kept its key interest rate unchanged at a review on Wednesday, as expected, saying it needed to assess the impact of higher oil prices driven by war in the Middle East while also supporting an economy grappling with weak consumption and high household debt.
The Bank of Thailand's monetary policy committee voted unanimously to maintain the one-day repurchase rate at 1.00 per cent, the lowest level in more than three years. It had cut the rate at its February meeting.
"Thailand's economic expansion is projected to moderate, as the war in the Middle East has a direct impact on growth by increasing business costs and eroding household purchasing power," the central bank said in a statement after the meeting.
The BOT said it expected economic growth to reach 1.5 per cent this year, down from a projection of 1.9 per cent made in February, before recovering to 2.0 per cent in 2027. Last year's growth of 2.4 per cent lagged regional peers.
All 28 economists in a Reuters poll expected the rate to be held steady at this week's meeting. A strong majority, 24 of 28, expected the policy rate to remain on hold throughout 2026, while four tipped a 25 basis-point cut by year-end.
INFLATION TO 'ACCELERATE' IN 2026 BUT UNDER CONTROL
The Bank of Thailand adjusted its headline inflation forecast for the year to an average of 2.9 per cent, up from a projection of 0.3 per cent made in December, driven by the surge in global energy prices.
"Inflation is set to accelerate through 2026, and is expected to moderate in 2027 as supply-side pressures subside," the central bank statement said.
Headline inflation is expected to exceed the target range of 1 per cent to 3 per cent for four quarters starting from the current quarter, but its impact can be disregarded for the time being, Assistant Governor Don Nakornthab told a news briefing.
"At this stage, there is no need to worry about stagflation," he added.
Monetary policy will depend on circumstances, and specifically on whether inflation risks or economic risks become more pronounced, Don said.
In a worst-case scenario, if the war drags on throughout 2026, economic growth would fall to below 1 per cent, while inflation would rise beyond 5 per cent, he added.
The central bank said it expected exports to rise by 8.1 per cent this year, up sharply from a December projection of a 0.6 per cent rise, following a strong first-quarter performance and supported by strong demand for tech products.
On Tuesday, the finance ministry lowered its 2026 growth forecast to 1.6 per cent from 2.0 per cent, and forecast inflation would rise to 3.0 per cent this year.
NEED TO 'MONITOR DOWNSIDE RISKS' FROM MIDDLE EAST WAR
Six cuts between October 2024 and February had reduced Thailand's key rate by a total of 150 basis points as authorities sought to energise Southeast Asia's second-largest economy. The Middle East war and oil price shock have piled on more pressure.
"It is necessary to monitor downside risks arising from a prolonged war and supply disruptions, which could have significant adverse effects on the manufacturing sector and employment," the BOT said.
Capital Economics said it expected the central bank to resume easing later this year, citing significant headwinds to the economy from the global energy crisis. The bank's next rate meeting is on June 24.
"It seems that Thai policymakers are taking a wait-and-see approach," said Kobsidthi Silpachai, head of Capital Markets Research at Kasikornbank.
Monetary policy tools are not well-equipped to handle Thailand's current challenges, which are caused by external geopolitical disruptions that have driven up inflation, he said, adding that he expected no policy change through 2026.
Earlier this month, the government approved support measures to mitigate the impact of high oil prices, including subsidies and loans. It plans to launch a consumer subsidy scheme in June.
The government has said it will borrow up to 500 billion baht ($15.4 billion) by October to support the economy, and will maintain the current value-added tax rate of 7 per cent for another year.
Don said government stimulus measures were valued at 300 billion baht ($9.19 billion) and would increase growth by 0.5 to 0.7 per centage points.
($1 = 32.64 baht)
