BoT set to hold firm on its policy rate

MPC expected to maintain 1% rate

The Bank of Thailand (BoT) is widely expected to leave its benchmark policy rate unchanged at 1% at Wednesday's Monetary Policy Committee (MPC) meeting, with research houses noting that subdued inflationary pressures and heightened external uncertainties warrant a steady stance.

Bank of Thailand governor Vitai Ratanakorn said that although peace talks between the US and Iran have not yet yielded fruitful results, the central bank has maintained its assessment that the Iran war would end by the middle of the year.

Under the bank's existing scenario, global oil prices would continue to decline, easing Thailand's inflationary pressure, though the government's Thai Help Thai Plus scheme would accelerate inflation.

The central bank, he said, has not changed its view that headline inflation would average 3% this year.

Krungsri Research said the MPC is likely to maintain the policy rate at 1%, citing uncertainties surrounding the global economy despite ongoing peace talks between the US and Iran.

While many countries continue to grapple with energy-related pressures that are straining inflation, fiscal positions and current account balances, the impact varies across economies.

In countries with weaker policy frameworks, rising energy costs could undermine investor confidence, trigger capital outflows and weaken currencies, potentially forcing central banks to tighten monetary policy.

For Thailand, however, the impact appears more manageable. Although the current account has recently slipped into deficit, foreign investors have remained net buyers of Thai stocks and bonds since the beginning of the year, while the baht has weakened only marginally.

Inflationary pressures are being driven by higher energy prices, which are seen as temporary, the research house noted.

"Against this backdrop, the MPC is expected to maintain its policy rate at the upcoming meeting in order to support economic growth," it said.

"Raising interest rates at this stage could place additional pressure on domestic demand without effectively addressing inflation, which is primarily driven by supply-side factors."

Kasikorn Research Center (K-Research) also expects the MPC to keep the policy rate unchanged, as policymakers await greater clarity on inflation, the economic outlook and developments in US–Iran peace negotiations.

"We expect the MPC to maintain its policy rate at 1% through the end of this year, with limited scope for any rate increases," K-Research said. "The current policy rate remains appropriate for the economic and inflation outlook."

K-Research forecasts headline inflation will average 3.1% this year, with price pressures expected to peak in the third and fourth quarters before gradually easing in 2027.

Mr Vitai wrote on his personal Facebook page on Sunday that S&P Global Ratings' decision to affirm Thailand's sovereign credit rating at BBB+ with a stable outlook reflects the central bank's credibility and its long-standing commitment to price stability, which remain key pillars supporting the country's credit profile.

"Credit should go to governors and central bank teams across successive generations for maintaining a strong and consistent monetary policy framework, which continues to underpin macroeconomic stability today," Mr Vitai said.

According to S&P, Thailand's economy is expected to grow by 2% this year, while the current account surplus is forecast at 2% of GDP. The government is expected to run a fiscal deficit equivalent to 3.5% of GDP to support economic activity.

Risks remain in terms of slower economic growth, persistently elevated fiscal deficit and inflationary pressure, all of which the central bank continues to monitor closely.

The central bank's updated economic projections appear broadly consistent with S&P's baseline.