The Bank of Thailand is expected to continue its easing cycle for the rest of 2025 amid a slowing economy. It has maintained its growth forecasts at 2.3% for 2025 and 1.7% for 2026. Our 2025 forecast is in line with the central bank’s. However, recent political instability adds downside risks to growth.
We therefore expect the central bank to lower its benchmark policy rate by a further 50 basis points, bringing it to a terminal rate of 1.00% by the end of 2026. We see this delivered in two rounds — one by the end of 2025, most likely in December, and another in the second half of 2026.
Deflationary pressures are mounting. Headline inflation has undershot even our modest expectations so far in 2025, with consumer prices falling by 0.7% year-on-year in July and rising just 0.2% on average in the first seven months of the year. As a result, we now expect no change in consumer prices on average for 2025 — down from our previous forecast of an increase of 0.6% — and see headline inflation ending the year close to zero.
Moreover, the baht has strengthened by around 7% to trade at 32.20 to the US dollar, its strongest since February 2022. In its latest monetary policy statement, the central bank highlighted concerns about the baht’s impact on export competitiveness. These concerns have likely grown since the US imposed 19% tariffs on imports of Thai goods.
That said, monetary easing alone will not be enough to stem appreciation pressure on the baht, especially if investor confidence in the dollar erodes further. The US Federal Reserve is facing increasing political pressure from President Donald Trump, who has publicly and repeatedly advocated for looser monetary policy.
Any US rate cuts could be perceived by markets as politically motivated, potentially undermining confidence in the Fed’s independence, especially if rate cuts occur alongside fiscal slippage or policy uncertainty.
Accordingly, we maintain our forecast for the baht to trade in the range between 32.00 and 33.50 range for the rest of the year.