Thai MPC holds 1.00% policy rate while economic growth remains subdued

Don Nakornthab, secretary of the Monetary Policy Committee (MPC), announced the outcome of the meeting on Wednesday (August 26, 2026).

The committee voted unanimously to keep the policy rate unchanged at 1.00% per annum.

The technology and artificial intelligence (AI) cycle continues to provide momentum to the Thai economy, but growth remains low and uneven.

Inflation is lower than previously projected, although it is expected to rise over the remainder of 2026 and into early 2027.

Overall credit has expanded further, but lending to small and medium-sized enterprises (SMEs) continues to contract.

The quality of loans to SMEs and vulnerable households requires monitoring.

The committee considers that an accommodative monetary policy stance, combined with targeted financial measures, has helped support the economic recovery.

The committee therefore considers it appropriate to keep the policy rate unchanged at this meeting.

Developments in the war in the Middle East, international trade-restrictive measures and future inflation risks nevertheless require monitoring.

The economy is expected to grow in 2026 and 2027 at rates close to previous projections.

Merchandise exports and private investment have grown more strongly than expected in line with the technology and AI cycle, while private consumption has grown less than expected, reflecting cautious spending as living costs rise.

Nevertheless, overall economic growth remains low and uneven.

Exports and investment linked to the technology and AI cycle have improved but rely heavily on imports, and their benefits to the Thai economy remain limited in scope.

SMEs continue to face difficulties adapting and intense competitive pressures.

Headline inflation in 2026 and 2027 is lower than previously projected, reflecting global energy prices.

Core inflation has also been revised down slightly from the previous projection because cost pass-through has been weaker than expected.

Nevertheless, headline inflation is expected to rise through the first quarter of 2027 because of El Niño and the gradual pass-through of costs.

It is then expected to return to a low level because of base effects and weak domestic demand resulting from below-potential economic growth.

Medium-term inflation expectations remain anchored within the target range.

The highly uncertain situation surrounding the war in the Middle East, price pass-through by businesses and medium-term inflation expectations all require monitoring.

The baht has been volatile against the US dollar in response to the situation in the Middle East and market views on the direction of the US Federal Reserve’s monetary policy.

Thai bond yields have remained stable even as bond yields in major economies have risen.

Overall credit has expanded, driven mainly by lending to large businesses.

Some of this borrowing is associated with a new wave of investment, but most is for working capital.

SME lending continues to contract, with financial institutions remaining cautious about lending to borrowers in higher-risk groups.

Overall loan quality remains stable, but the repayment capacity of SME borrowers and vulnerable households must be monitored in the period ahead.

Financial institutions should also be encouraged to provide more support to vulnerable borrowers and viable SMEs through targeted financial measures.

Under a monetary policy framework aimed at maintaining price stability while supporting sustainable economic growth and preserving financial stability, the committee considers the current interest rate appropriate to support the economic recovery.

At the same time, inflation is expected to rise temporarily because of supply-side factors.

Its outlook and future risks require monitoring.