MPC holds rate at 1.0% as war-driven costs weigh on Thailand’s outlook

The Bank of Thailand’s Monetary Policy Committee (MPC) voted unanimously to keep the policy rate unchanged at 1.00% at its meeting on April 29, 2026, citing a slowing growth outlook and heightened uncertainty linked to the war in the Middle East.

Don Nakornthab, secretary of the MPC, said the committee voted 6-0 to hold the rate, judging the current setting appropriate for supporting the economy as it slows, while inflation pressures are largely being driven by supply-side factors.

Growth seen moderating as costs rise

The MPC said Thailand’s economic expansion is expected to moderate, with the Middle East conflict raising business costs and eroding household purchasing power. The committee noted that data before the war had pointed to stronger-than-expected growth, supported by domestic demand and merchandise exports, but the conflict is now expected to weigh on the outlook.

The committee projected growth to slow to 1.5% in 2026 and 2.0% in 2027. Private consumption is under pressure from a higher cost of living and a weaker income outlook. Foreign tourist arrivals are also expected to decline because of higher travel costs and constraints.

Merchandise exports are still projected to expand at a favourable pace, supported by global demand for technology products. The MPC added that growth could turn out higher this year if the government introduces additional fiscal stimulus, but would likely ease next year as stimulus effects fade and base effects rise.

The committee said the outlook remains highly uncertain, with downside risks if the conflict drags on and supply disruptions persist, potentially hitting manufacturing and employment.

Inflation expected to rise in 2026, ease in 2027

Headline inflation is projected to average 2.9% in 2026, rising from -0.5% in the first quarter, driven mainly by higher global energy prices and cost pass-through. Inflation is expected to stay above the upper bound of the 3.0% target range for some time, before easing to an average of 1.5% in 2027 as supply pressures gradually subside.

Core inflation is projected at 1.6% in 2026 and 1.5% in 2027, reflecting higher cost pass-through to goods and services. However, the MPC said price rises are not expected to be broad-based or persistent given weak demand conditions, and medium-term inflation expectations remain anchored within the target range.

Still, the committee said it would monitor upside risks, including prolonged high energy prices and extended supply shortages linked to the closure of the Strait of Hormuz, a greater-than-expected pass-through by firms, and any shift in medium-term inflation expectations.

Markets volatile; credit growth still subdued

The MPC noted heightened volatility in asset prices and the exchange rate. Thai government bond yields have risen in line with global moves, while the baht has depreciated, reflecting Thailand’s relatively high dependence on energy imports from the Middle East.

Although financial system interest rates have declined following earlier policy rate cuts, overall credit growth is expected to remain subdued. Financial institutions continue to be cautious about lending to higher-risk borrowers and are assessing the war’s impact on both credit growth and loan quality.

Policy stance unchanged, monitoring continues

Under its framework of maintaining price stability, supporting sustainable growth and safeguarding financial stability, the MPC said the current policy rate remains appropriate. With uncertainty still elevated, the committee said it will continue to closely track inflation developments and medium-term inflation expectations, as well as the broader economic impact of the conflict.