The forecast for headline inflation this year is cut to zero, from 0.5% previously
[BANGKOK] Thailand’s central bank left its key interest rate steady on Wednesday (Oct 8), surprising markets which had expected another cut as the economy struggles with a strengthening baht, negative inflation and US tariffs.
But policymakers left the door open to more easing if the glum outlook for South-east Asia’s second-largest economy deteriorates further, and economists said they still expect two more rate cutes by the end of next year.
“We got this one wrong, together with most forecasters, but we believe that a further easing in monetary policy in the near future remains a no-brainer, given the poor fundamental backdrop,” said Miguel Chanco, chief emerging Asia economist at Pantheon Macroeconomics.
The Bank of Thailand’s (BOT) monetary policy committee voted five to two to keep the one-day repurchase rate steady at 1.50 per cent at Wednesday’s review, the first for new governor Vitai Ratanakorn. The BOT has cut rates four times in the past year.
“The transmission of previous policy rate cuts to the economy is ongoing,” the central bank said in a statement.
The BOT said it now expects the economy to grow 2.2 per cent this year and 1.6 per cent in 2026, slightly lower than previous forecasts of 2.3 per cent and 1.7 per cent, respectively. Last year’s growth was 2.5 per cent.
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“The economy in the second half of 2025 throughout 2026 is expected to slow down due to the impacts of US trade policies,” the central bank said.
Only six of 26 economists in a Reuters poll had predicted rates would be kept steady at Wednesday’s review Nineteen economists had predicted a 25 bps point cut, and one had forecast a 50 bps cut.
Among those who provided a longer-term outlook on rates in the poll, 13 of 21 economists expected the policy rate to be at 1.25 per cent by the end of 2025. The remaining eight saw it at 1 per cent.
Easing cycle likely isn’t over
Both Pantheon Macroeconomics and Capital Economics said after the decision that they expect two more 25-bps rate cuts in this cycle, taking the terminal policy rate to 1 per cent next year.
“The main reason they refrained from cutting rates today appears to be concern about preserving policy space (ammunition)”, Capital Economics said.
The central bank cut its forecast for headline inflation this year cut to zero, from 0.5 per cent previously. The inflation rate has been negative for the past six months, well below the central bank’s target range of 1 per cent to 3 per cent, but the BOT said deflationary risks were low.
The BOT said inflation was expected to be 0.5 per cent in 2026, before it returns to the target range by early 2027.
Thailand has lagged its regional peers as it struggles with US tariffs, high household debt, weak consumption, and a strong currency.
The central bank did upgrades its view on exports, forecsting a 10 per cent rise this year versus its previous forecast of 4 per cent seen in June, adding the impact of US tariffs has been less than expected. But 2026 exports were expected to shrink by 1 per cent.
On Tuesday, Finance Minister Ekniti Nitithanprapas said the government would spend 44 billion baht (S$1.8 billion) on a consumer subsidy programme and will roll out other stimulus measures to try to lift growth above 2.2 per cent this year.
Prime Minister Anutin Charnvirakul’s new government has a limited window to implement its measures, with the premier planning to dissolve parliament by the end of January with a general election to be held in March or early April. REUTERS
