Thailand holds key rate at 1%

Thailand’s Monetary Policy Committee kept the one-day repurchase rate unchanged at 1.00% on Wednesday, marking a fourth consecutive meeting without a change in the key policy rate. The decision was unanimous and aligned with expectations from economists who had anticipated a hold. The committee judged that the current policy rate is appropriate to support economic recovery, maintaining what it describes as an accommodative monetary policy stance.

The central bank stated that this accommodative stance, combined with targeted financial measures, is intended to support the recovery in a context of uneven growth. The baht was largely unchanged following the decision, indicating a muted immediate market reaction. The next rate-setting meeting is scheduled for December 23.

Policymakers noted that the Thai economy continues to gain momentum, supported by the technology and artificial intelligence cycle, which has driven merchandise exports and private investment. The Bank of Thailand now projects economic growth of 2.4% in 2026 and 2.1% in 2027. These projections reflect stronger-than-expected momentum in sectors linked to technology and AI-related manufacturing and services.

Despite this support, the central bank stressed that overall growth remains below potential and that the benefits of the recovery are concentrated among businesses and workers in related sectors. Private consumption remains constrained by elevated household debt, fragile labor market conditions and weak purchasing power, especially among low-income households facing cost-of-living pressures. The economy expanded 1.9% year-on-year in the second quarter, down from 2.8% in the previous quarter, and growth last year was 2.4%, lagging regional peers.

Headline inflation accelerated to 2.82% in September, remaining within the central bank’s target range of 1% to 3%. The Bank of Thailand forecasts headline inflation at 2.1% in 2026 and 1.3% in 2027. Core inflation is projected to average 1.2% in 2026 and 1.3% in 2027, with medium-term inflation expectations seen as anchored within the target band.

The central bank expects inflation to rise temporarily through the rest of this year and into early next year, driven by energy prices and the effects of El Niño. It highlighted rising inflation risks from higher oil prices, climatic factors and potential cost pass-through by firms, while also pointing to the limited capacity for prolonged energy price subsidies. Nonetheless, inflation is expected to return to low levels later, influenced by base effects and weak domestic demand.

The committee emphasized that monetary policy will remain accommodative for now, with normalization to proceed only when the economy is ready. It will closely monitor the impact of low interest rates on long-term macro-financial stability while watching developments in inflation and growth. Overall credit growth has picked up, driven mainly by large corporate loans, but lending to small and medium-sized enterprises continues to contract.

While many regional central banks have raised interest rates in response to inflationary pressures linked to geopolitical developments, Thailand has maintained its policy rate at 1.00% since the conflict in the Middle East began. The Bank of Thailand signaled ongoing vigilance toward upside risks to inflation arising from global energy markets and broader uncertainty, even as it seeks to foster a recovery that remains below potential and uneven across sectors and income groups.