The central bank lifted its growth forecasts on exports tied to artificial intelligence, but EBC Financial Group explains why a weaker baht, rising oil prices, and a wide gap with US rates may leave it less room to ease

 

BANGKOK, THAILAND | Oct 29 – The Bank of Thailand (BOT) kept its policy rate, the benchmark interest rate it sets for the economy, at 1.00% on 28 October for a fourth straight meeting, even though many central banks have tightened this year. The US Federal Reserve and the Bank of Japan both raised rates in September, although the Fed held steady on 28 October, and the International Monetary Fund (IMF) counts 14 of 33 major central banks that have raised rates since the second quarter of 2026.

Its Monetary Policy Committee (MPC) voted unanimously to hold, with one of its seven members absent, and raised its growth forecasts on exports tied to artificial intelligence (AI). It also added a line that markets may read as a limit on further easing, saying it will monitor “the effects of low interest rates on long-term macro-financial stability”.

“Thailand is holding still while much of the world tightens, and that choice now shows up in the currency,” said Sana Ur Rehman, Financial Market Analyst, EBC Financial Group. “The BOT has good reasons to wait, from weak consumption to shrinking credit for small firms. By pointing to the side effects of low rates, though, it may have raised the bar for any further cut.”

Stronger Growth, Narrow Gains

The MPC now expects the economy to grow 2.4% in 2026 and 2.1% in 2027, up from the 2.3% and 1.8% it forecast in June, on stronger-than-expected merchandise exports and private investment linked to the technology and AI cycle. The 2026 figure would match last year’s growth of 2.4%.

The committee was clear that the gains are narrow. Growth remains below potential, meaning slower than the economy could sustain without stoking inflation, and the benefits are concentrated among businesses and workers in related manufacturing and services. High household debt, a fragile labour market, and weak purchasing power, particularly among low-income households, continue to hold back consumer spending, and the BOT expects foreign tourist arrivals to fall as oil prices rise.

BOT forecast	2026	2027
GDP growth, October forecast	2.4%	2.1%
GDP growth, June forecast	2.3%	1.8%
Headline inflation, October forecast	2.1%	1.3%
Core inflation, October forecast	1.2%	1.3%

Source: Bank of Thailand MPC statements, 24 June and 28 October 2026. GDP is gross domestic product, the total value of the economy’s output.

A Temporary Rise in Inflation

Headline inflation, which covers all consumer prices, is projected to average 2.1% in 2026 and 1.3% in 2027. Core inflation, which strips out volatile energy and fresh food prices, is projected at 1.2% and 1.3%. The BOT expects prices to rise through the rest of this year and into early 2027 on energy costs and El Niño, a Pacific weather pattern that can disrupt harvests and lift food prices, before falling back as base effects, the comparison with this year’s higher prices, and weak demand take hold.

Medium-term inflation expectations, meaning what households and businesses expect prices to do over the next few years, remain within the BOT’s 1% to 3% target range. The committee nonetheless flagged upside risks from the conflict in the Middle East, the limited capacity of energy subsidies, and companies passing higher costs on to customers.

Credit Is Growing, but Not for Small Firms

Overall lending has picked up, driven by large companies borrowing for working capital, higher operating costs, and a new wave of investment. Loans to small and medium-sized enterprises (SMEs) continue to shrink across most sectors, as banks remain cautious about lending to riskier borrowers. Overall loan quality is stable, but the BOT said the repayment ability of SMEs and vulnerable households needs close monitoring.

The pattern matters for policy. Borrowing costs on private loans have stayed in line with the policy rate, so the obstacle for small firms appears to be accessed to credit rather than its price. That helps explain why the BOT pairs low rates with targeted financial measures, and why a further cut might do little for the borrowers who most need help.

Holding While Others Tighten

On 16 September, the US Federal Reserve raised the target range for the federal funds rate by 0.25 percentage points to 3.75% to 4.00%, according to its policy statement, its first increase since 2023 and held it there on 28 October by a 10 to 2 vote, with both dissenters favouring another rise. The Bank of Japan raised its rate to 1.25% in September, India’s central bank lifted its rate in October, and the International Monetary Fund found that 14 of 33 major central banks had raised rates since the second quarter of 2026. The BOT, by contrast, cut six times between October 2024 and February 2026, by a total of 150 basis points, or 1.5 percentage points.

With the Fed’s target range at 3.75% to 4.00% and the BOT’s policy rate at 1.00%, US policy rates sit 2.75 to 3.00 percentage points above Thailand’s. A wider gap makes dollar assets more rewarding to hold than baht ones, and the BOT itself said the baht weakened as markets moved towards expectations of tighter US policy, with rising oil prices adding to the pressure. A weaker baht also makes imported fuel more expensive in local terms, which can feed the inflation risks the committee is watching. That is the bind: rates low enough to support an uneven recovery, and a currency that may be more sensitive to every move abroad.

What to Watch

All 26 economists polled by Reuters expected the 28 October hold, and most expect the rate to stay at 1.00% through the end of 2027. Capital Economics sees a final quarter-point cut in 2027, while BOT Deputy Governor Piti Disyatat said in October that policy would remain accommodative and the rate would normalise once the economy was ready. Views on the next move therefore point in both directions.

The next markers are Thailand’s October inflation figures, due in early November, the path of oil prices, the Federal Reserve’s final meeting of the year in December, and the MPC’s own December meeting.

“For businesses watching the baht, no single release will settle the outlook,” Sana added. “October inflation, oil prices, and the Federal Reserve’s next decision will each affect how much room the BOT has, so it’s worth watching all three.”