Bank of Thailand closely monitors Iran war, warns growth may undershoot target and vows to curb baht volatility

The Bank of Thailand (BOT) is closely monitoring the widening Iran war and has acknowledged that spillovers are beginning to reach Thailand, raising downside risks to growth and increasing pressure on the currency.

Chayawadee Chai-anant, Assistant Governor for the Corporate Relations Group at the BOT, said the central bank is tracking developments closely and is starting to see impacts feeding through to the Thai economy, even though some monthly indicators may not yet fully capture the picture because they are backward-looking. She said the effects are already emerging through several channels.

Chayawadee said the first transmission channel is costs, with energy and oil prices showing a clear upward trend. The BOT is watching how much higher costs will pass through to household living expenses, warning that if the situation drags on, pressure from higher oil and energy costs would likely be unavoidable.

She added that the conflict is a negative factor for Thailand’s recovering tourism sector, which remains a key engine of the economy. The scale of impact, she said, will differ across countries depending on how heavily they rely on various channels such as energy imports and tourism.

From the BOT’s perspective, she said a plausible base-case scenario is that even if the situation ends in the first half of the year, the impact could extend into the second half due to damage to infrastructure and a slower recovery. In that case, average oil prices could be around US$100 per barrel, with ongoing constraints on transport and logistics.

Given the uncertainty, she said the BOT sees downside risk to Thailand’s economy, and growth could come in below the 2% previously assessed by the Monetary Policy Committee (MPC), depending on the severity and duration of the conflict.

Chayawadee said the BOT will incorporate all factors into its assessment at the next MPC meeting in late April 2026, focusing in particular on the inflation outlook and new assumptions for energy prices.

If inflation rises due to a temporary supply shock—such as energy prices—she said this can be “looked through”, as interest rates cannot directly fix supply-side constraints. However, if inflationary pressure begins to feed into demand or long-term inflation expectations, the MPC could consider an appropriate interest-rate response.

She said financial-market volatility has increased, particularly for the baht, which at times has weakened more than other regional currencies, reflecting Thailand’s fundamentals as a net energy importer with high dependence on tourism. While the baht has recently strengthened slightly compared with earlier levels, she said implied volatility around 9% is elevated relative to recent periods, though not at a historical peak.

She said the BOT’s role in such conditions is to manage excessive baht volatility—both during appreciation and depreciation—so that currency movements do not further burden the economy or businesses. The aim is to help operators maintain pricing and business continuity, keep financial markets functioning normally, and prevent panic that could cause markets to seize up. She noted, however, that many key drivers remain external and are difficult to control.

On support for small and medium-sized enterprises, Chayawadee said the BOT has been running the “SME Credit Boost” programme to improve access to finance for viable businesses. She said demand for credit has recently increased, particularly among SMEs in the programme’s target group.