BOT rejects stagflation fears as loan decree lifts GDP outlook

Bank of Thailand (BOT) Governor Vitai Ratanakorn has dismissed concerns that Thailand is entering stagflation, saying the current inflation spike is temporary and that the government’s 400-billion-baht borrowing plan could help lift GDP growth this year to 2.1%.

Vitai said stagflation, by economic definition, requires two conditions: a severe economic downturn and persistently high inflation over a prolonged period.

Thailand has not reached that point, he said, adding that inflation is expected to gradually ease from the second quarter of next year because of the high price base recorded during the same period this year.

400-billion-baht loan decree seen as key buffer

Vitai said the proposed Royal Decree authorising the Finance Ministry to borrow 400 billion baht to address the impact of the energy crisis and support Thailand’s energy transition would be a key factor in helping the economy avoid stagflation risks.

The BOT estimates that the measure will add around 0.6 percentage points to this year’s GDP growth, raising the full-year forecast to 2.1% from the previous estimate of 1.5%.

However, growth next year is expected to slow to 1.6%, down from the earlier projection of 2.0%, due to the higher economic base created by stronger growth this year.

Inflation expected to return to target range

The BOT said April inflation stood at 2.89%, in line with expectations.

Full-year inflation is now forecast to average around 3.1%, up from the previous estimate of 2.9% following the loan decree.

“Thailand’s inflation situation is different from that of many countries around the world, as Thai inflation remains near the lower bound of the target range, while in most other countries it has already exceeded the upper bound,” Vitai said.

The BOT expects average inflation next year to fall to 1.4%, bringing it back within the normal target range of 1-3%.

Global conflict remains a key risk

Vitai said that although Thailand is not currently in stagflation, risks must still be closely monitored, particularly overseas conflicts and wars, which remain highly volatile.

Such developments could affect energy costs and supply chains, he said.

BOT prepares targeted support for borrowers

To cushion the impact on businesses and retail borrowers, the BOT is accelerating targeted measures.

These include improving the SME Credit Boost programme so that loan guarantees cover impacts from global crises, and introducing Secure Plus to support the use of land as collateral for new loans.

The measures are aimed at strengthening liquidity and helping the economy continue moving forward.

The BOT will also closely monitor non-performing loans and may reintroduce sustainable debt-resolution measures if needed.

Bank fee review due by month-end

Vitai said the BOT would announce progress by the end of this month on a review of commercial bank fee structures aimed at reducing the burden on the public.

The central bank is also considering whether to extend measures on credit card and cash-card interest rates, as well as minimum repayment rules.

The current minimum repayment rate is 8% and is due to expire on December 31, 2026.

“These measures must strike a balance so they do not affect access to credit in the system, especially as non-bank operators are playing a greater role at a time when commercial bank lending is growing slowly in line with economic conditions,” Vitai said.

Virtual banks expected to support SMEs

On virtual banks, Vitai said all three licence applicants are still proceeding through the required process.

They must complete their establishment within one year and may request a one-year extension.

The BOT expects clearer progress on the establishment of at least two virtual banks by the end of this year.

Vitai said virtual banks would help grassroots groups, small traders and SMEs gain better access to credit through IT systems and more efficient risk management.