Bank of Thailand Holds at 1% as Recovery Lags Regional Peers

The Bank of Thailand kept its benchmark rate at 1.00% on Wednesday, a third consecutive hold, as policymakers judged that an accommodative stance remains appropriate for an economy that expanded 1.9% in the second quarter — down sharply from 2.8% in the prior three months.

"The committee views that the current policy rate is appropriate to support economic recovery," the Monetary Policy Committee said in a statement after its unanimous decision. The committee noted that the economy continues to draw support from the technology and artificial intelligence cycle, but that "overall growth remains low and uneven."

The hold extends a pause that began in April after six cuts totaling 150 basis points between October 2024 and February 2026. The baht traded at 32.71 against the dollar, little changed after the announcement. Headline inflation slowed to 1.95% in July, within the central bank's 1% to 3% target range, while the BOT projects 2026 headline inflation of 2.8%.

The decision sets Thailand apart from regional peers — South Korea, Indonesia and the Philippines have all raised rates — and reflects the BOT's view that the recovery remains too fragile to absorb tighter policy. The next meeting is Oct. 28, when updated economic forecasts are due.

Inflation Outlook Softens, But El Niño Looms

The BOT trimmed its inflation projections for 2026 and 2027, citing lower global energy prices. Headline inflation is expected to rise through the first quarter of 2027 because of El Niño effects and gradual cost pass-through, before returning to low levels as weak domestic demand keeps growth below potential. Core inflation is projected to decline slightly from prior estimates, reflecting lower-than-anticipated cost pass-through by firms.

Medium-term inflation expectations remain anchored within the target range, the committee said, while noting it will monitor the Middle East conflict, cost pass-through and inflation expectations in the months ahead.

Credit Growth Picks Up, SME Loans Still Contract

Overall credit growth has picked up, driven primarily by lending to large corporates — partly tied to a new wave of investment, though most reflects demand for working capital. SME loans continue to contract as financial institutions remain cautious toward high-risk borrowers. The committee said the debt repayment ability of SMEs and vulnerable households warrants close monitoring and encouraged banks to provide greater support through targeted financial measures.

The BOT's stance contrasts with the tightening cycle underway in other Asian economies. While central banks in South Korea, Indonesia and the Philippines have raised rates to combat inflation, Thailand has kept policy unchanged since February, prioritizing growth support. The economy grew 2.4% last year, lagging regional peers, and household debt remains elevated.

At its June meeting, the BOT raised its 2026 GDP growth forecast to 2.3% from 2.0% and projected export growth of 14%. The committee said exports and private investment have expanded faster than expected, supported by the technology and AI cycle, but these gains rely heavily on imported inputs and generate limited spillovers to the broader economy. Private consumption has expanded more slowly than anticipated as households remain cautious because of rising living costs, while SMEs face adaptation challenges and intense competition.

All but two of 32 economists polled by Reuters had expected the hold, and 17 of 21 forecast the rate would remain unchanged through the end of 2027. The baht has been volatile against the dollar, driven by geopolitical developments in the Middle East and shifting expectations about the Federal Reserve's policy trajectory, the BOT noted. Thai government bond yields have remained broadly stable despite rises in major economies.

This article is for informational purposes only and does not constitute investment advice.