The Bank of Thailand (BOT) has reaffirmed its expectation that inflation will remain within the 1% to 3% target range over the next two years. Governor Sethaput Suthiwartnarueput described this target as both “appropriate” and supportive of Thailand’s economic growth potential.
This projection aligns with the central bank’s longstanding commitment to maintaining price stability, as the inflation target has now been retained for a fifth consecutive year.
Proven inflation management framework
Governor Sethaput emphasised the effectiveness of the inflation target in anchoring medium-term expectations, stating that it offers sufficient flexibility to accommodate external and supply-side shocks. The statement came shortly after the Thai Cabinet approved the monetary policy framework for 2025, underscoring the government’s endorsement of this approach.
Despite a six-month streak of inflation rates below the lower limit of the target—reaching just 0.95% in November—BOT maintained its key interest rate at 2.25% during its December 18 meeting. This decision follows a surprising rate cut in October aimed at addressing broader economic conditions.
“The Monetary Policy Committee (MPC) assessed that average headline inflation for 2025 and 2026 would remain within the target range, although temporary deviations due to economic shocks may occur,” Sethaput explained.
Policy coordination for economic stability
The Bank of Thailand and the Ministry of Finance have committed to regular discussions to ensure the alignment of fiscal and monetary policies. These collaborative efforts aim to address any emerging challenges and maintain economic stability.
“In cases of necessary or fitting circumstances, the Minister of Finance and the MPC may, by mutual agreement, revise the monetary policy target before proposing the new target to the Cabinet for approval,” Sethaput noted.
Such a mechanism ensures adaptability in the face of unexpected economic developments while maintaining a focus on sustainable growth.
Focus on sustainable growth and stability
The BOT emphasised that its monetary policy is designed to foster sustainable economic growth and financial stability. This involves the careful setting of policy interest rates and the use of supplementary tools to manage exchange rate volatility.
However, the bank has not committed to boosting inflation to the 2% midpoint of the target range—a stance advocated by Finance Minister Pichai Chunhavajira. Instead, the focus remains on maintaining overall price stability within the established range.
Addressing deviations from the target
To enhance transparency and accountability, the BOT has outlined procedures to address any deviations from the inflation target. If headline inflation over the past 12 months or the forecast for the next 12 months falls outside the target range, the MPC will issue an open letter to the Finance Minister.
More Read
This letter will detail:
- The reasons for the deviation.
- Past and planned monetary policy actions.
- Measures aimed at guiding inflation back to the target range.
This process highlights the central bank’s commitment to ensuring clear communication and proactive management of inflation expectations.
Challenges and outlook
Thailand’s current inflation rate of 0.95% reflects subdued domestic demand and favourable supply-side conditions, creating pressure for the central bank to consider further rate cuts. However, BOT’s decision to keep the interest rate steady in December signals a cautious approach, balancing inflation management with the need to support economic growth.
The global economic environment, including supply chain disruptions and geopolitical uncertainties, remains a key factor influencing Thailand’s inflation trajectory. Temporary fluctuations in inflation due to external shocks are anticipated, but the central bank is confident in its ability to steer inflation back within the target range.
Conclusion
The Bank of Thailand’s reaffirmation of its 1%-3% inflation target through 2026 reflects a balanced approach to managing price stability and fostering economic growth. While challenges persist, the central bank’s proven framework, coupled with close coordination with the Ministry of Finance, provides a solid foundation for navigating uncertainties and sustaining confidence in the nation’s monetary policy.
By maintaining this strategic focus, Thailand positions itself for steady growth and stability in the years ahead, even as global economic conditions evolve.
