The Bank of Thailand (BOT)’s decision on August 26 to maintain its policy rate at 1.00%, unanimously for the second consecutive meeting, was widely anticipated. The unchanged accommodative monetary policy stance reflected a balance between supporting low and uneven economic and credit growth, and a transitory pickup in inflation that is likely to be lower than previously assessed. We continue to expect the BOT to keep its policy rate stable at 1.00% through the remainder of 2026, resulting in ongoing stable short-end government bond yields.
The central bank’s Monetary Policy Committee appears to have limited appetite to adjust interest rates in either direction. While maintaining a GDP growth outlook that is better than initially feared, policymakers continued to highlight low and uneven economic growth. Strong artificial intelligence (AI)-led goods exports and private investment growth were assessed to generate limited domestic spillovers, while private consumption remains constrained by cautious spending and higher costs, despite a temporary government stimulus boost in 3Q26. Additionally, small and medium-sized businesses face challenging conditions. Lower-than-expected headline inflation, which has retreated from the upper end of the BOT’s 1-3% target range, has reduced the impetus for policy tightening, amid anchored medium-term inflation expectations. Nevertheless, the unresolved conflict in the Middle East, continued albeit gradual pass-through of energy costs, and upside risks to food inflation arising from adverse El Nino-related weather conditions will keep the authorities vigilant on inflation, even as they look through the supply-side shock that would ease after 1Q27. The BOT noted volatile movements in the Thai baht against the US dollar due to external developments. This was unlikely to have been a critical factor in its decision, unlike for some central banks in the region, given Thailand’s strong external buffers to mitigate currency-related risks.
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