The Bank of Thailand (BOT)’s decision to unexpectedly hold its policy interest rate at 1.50% on October 8 was a dovish pause, in our view. The Monetary Policy Committee (MPC) thinks that ‘monetary policy should be accommodative’ amid slowing economic growth and muted inflation, but refrained from further easing to preserve policy space, and to allow the pass-through of previous reductions. Most of the MPC members placed importance on the timing and effectiveness of monetary policy, with five out of seven members voting for a stable rate. Given the BOT’s still dovish rhetoric and persistent growth headwinds, we continue to expect further rate cuts totalling 50bps to 1.00% by 1H26, aligned with fixed income market expectations.
The BOT’s updated economic growth forecasts for 2025 and 2026 at 2.2% and 1.6%, respectively, were close to its previous expectations (DBSf: 2.1% and 1.6%). However, these imply sub-2% yoy expansion in 3Q25 and 4Q, and below-potential growth in 2026, according to BOT Assistant Governor Sakkapop Panyanukul in a briefing. Thai goods exports will likely cool in 2H25 and contract in 2026 due to headwinds from US tariffs, although the central bank assessed a less-than-expected impact. Exporter revenues were hurt by Thai baht appreciation, while credit remained in contraction. Foreign tourism and domestic demand are weakening, but the authorities will monitor for a gradual recovery amid a return of Chinese tourists and fiscal policies to shore up private consumption. Muted inflation below the BOT’s 1-3% target would provide room for looser monetary policy. We trim our headline inflation forecast for 2025 to -0.1%, amid downward supply-side oil and food factors, close to the BOT’s lowered projections (2025: 0.0%, 2026: 0.5%). The Thai baht initially appreciated against the US dollar following the BOT’s rate pause but ended flat yesterday. Excessive currency gains are likely to be capped given the BOT’s dovish tone, and its vigilance over the baht’s appreciatory moves.
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