MPC holds at 1% as expected, viewing inflation spike as temporary amid Middle East war, in wait-and-see mode

Abstract

The MPC held Thailand’s policy rate at 1% to support the economy amid uncertainties from the Middle East conflict. Inflation is expected to rise temporarily above the target range due to supply-side factors before returning to the target next year. The MPC forecasts GDP growth of 1.5% in 2026, down from 2.4%, but potential government stimulus could boost growth by 0.5-0.7%. The MPC remains data-driven and cautious, avoiding rate changes that could destabilize the fragile economy.

Summary

Key Summary

The Monetary Policy Committee (MPC) has maintained the policy rate at 1%, considering it suitable to address ongoing economic challenges stemming from the Middle East conflict. Although inflation is expected to rise temporarily this year, it should return to target levels by 2027, making immediate rate hikes unnecessary. SCB EIC anticipates that the MPC will likely uphold this rate for another one to two quarters, closely monitoring the geopolitical situation.

Economic Outlook

The MPC forecasts Thailand’s economy will grow by 1.5% in 2026, a slowdown from the previous year due to the war’s impacts. If new government stimulus measures totaling THB 300 billion are implemented, GDP growth could improve by up to 0.7%. Nevertheless, the effects of this stimulus would be temporary.

Inflation Assessment

Headline inflation is projected to exceed the 1–3% target, peaking at an average of 2.9% in 2026 before declining in 2027. The MPC sees limited risks of sustained inflation due to the current economic structure. Future rate decisions will remain data-dependent, aiming to prevent risks to economic stability while considering the fragile nature of Thailand’s recovery.

Source : MPC holds at 1% as expected, viewing inflation spike as temporary amid Middle East war, in wait-and-see mode