The Bank of Thailand claims it has not observed deflation in the Thai economy, even as it lowered its inflation forecast for this year to 0%, driven by declines in energy and fresh food prices.
Speaking after the Monetary Policy Committee’s (MPC) meeting on Wednesday, committee secretary Sakkapop Panyanukul said the Thai economy shows no indication of entering a deflationary phase. He said deflationary risks remain low as most goods and services continue to see stable or rising prices.
“Price increases have not been broad-based, occurring mainly in energy and raw food items. Despite tighter financial conditions in the business sector due to slower bank loan growth, there are still no signs of deflationary risk,” he said.
Mr Sakkapop said the central bank will continue to monitor goods and services prices to assess potential deflation risks going forward.
The MPC lowered its headline inflation forecast on Wednesday to 0% for 2025, down from a previous outlook of 0.5%, and expects inflation of 0.5% in 2026. The inflation rate is projected to gradually return to the target range of 1-3% by early 2027.
The lower inflation outlook is mainly driven by supply-side factors, including falling global crude oil prices, government measures to reduce domestic retail fuel prices, and lower raw food prices following favourable weather conditions that increased supply, he said.
Meanwhile, core inflation is expected to remain steady at 0.9% in both 2025 and 2026, while medium-term inflation expectations among the private sector remain well-anchored within the central bank’s target range.
In addition, the MPC cut Thailand’s GDP growth forecast for this year to 2.2%, down from 2.3%, and lowered the 2026 projection to 1.6% from 1.7%, citing slower growth momentum in the third quarter and the impact of US tariffs on Thai exports.
However, Mr Sakkapop said the actual impact of US tariffs on Thai exports has been less severe than anticipated.
The MPC projects exports to grow by 10% this year before contracting by 1% in 2026. Under this scenario, the central bank plans to maintain an accommodative monetary policy stance throughout 2026.
The panel also voted 5-2 at the meeting to maintain the policy rate at 1.50%. Two members voted to reduce the rate by 0.25 percentage points to 1.25%, arguing a more accommodative policy would better support economic recovery, ensure favourable financial conditions, and ease debt burdens for small and medium-sized enterprises and vulnerable households.
The Bank of Thailand’s policy rate remains the third-lowest in the world, behind only Switzerland and Japan.
AS EXPECTED
Nuttaporn Triratanasirikul, deputy managing director of Kasikorn Research Center (K-Research), said the MPC’s decision aligned with its forecast as economic conditions have not significantly diverged from the central bank’s earlier assessment.
She said the new government’s stimulus measures are expected to bolster economic growth in the final quarter, which was previously forecast to remain relatively flat year-on-year with exports contracting following the US tariff measures.
“Considering the impact of the government’s stimulus, the likelihood of a technical recession in the last quarter is very low,” Ms Nuttaporn told the Bangkok Post.
She said Kasikornbank maintains its projection for a Thai policy rate trim in December, down to 1.25% by year-end.
“However, if the stimulus package substantially lifts GDP growth in the final quarter, the MPC may opt to keep the rate unchanged at its December meeting,” said Ms Nuttaporn.
K-Research projects another Thai interest rate reduction in the first half of 2026, as overseas shipments are expected to feel the full-year impact of US tariffs, including sector-specific duties on products such as semiconductors and pharmaceuticals, she said.
Veeravat Virochpoka, head of research at FSS International Investment Advisory Securities, said after three consecutive rate cuts, the Bank of Thailand likely believes it can manage economic conditions at the existing rate.
Given the expected slowdown in the global economy in the fourth quarter and early 2026, the central bank may be reserving its policy space for a potential rate cut in December, said Mr Veeravat.