The Bank of Thailand is ready to raise interest rates back to normal levels when GDP grows to 2.7-3%.

The Bank of Thailand (BOT) revealed it will raise interest rates to a normal level once the Thai economy grows to its potential of 2.7-3% for a period of time. It views the 2.3% GDP growth as still low, and notes that inflation is temporarily trending higher due to a low base and El Niño.

8 July 2569 – Dr. Don Nakornthap, Assistant Governor, Monetary Policy Department, Bank of Thailand (BOT). It was revealed at the Monetary Policy Forum 2/2569 that the Thai economy is currently caught in a tug-of-war between two significant opposing forces: opposing forces stemming from the negative impact of the conflict in the Middle East on oil prices and production costs, and supporting forces from foreign investment in technology and artificial intelligence (AI), which is currently on an upward trend.

According to the Bank of Thailand's assessment, the forces of war will not be able to overcome the cyclical forces of investment. This is the main reason for the upward revision of the 2569 economic forecast from 1.5% to 2.3%.

"Revising the GDP forecast upwards to 2.3% isn't overly optimistic, as this figure is still below potential and reflects K-shaped inequality, where growth is concentrated in the technology sector and doesn't reach the majority of the population. Therefore, 2.3% may not be a satisfactory figure in terms of public perception."

Currently, Thailand's policy interest rate is at 1%, which is the second lowest in the world. Maintaining the interest rate at 1% per year is considered appropriate for the current economic conditions. Normalizing monetary policy or raising interest rates would only be considered when the economy returns to its normal growth level, i.e., reaching its potential growth of 2.7% for a period, or even exceeding 3%, or when risks to financial system stability are identified.

Dr. Don revealed that the Thai economy should not continue to experience such low growth for too long; everyone must work together. However, restructuring is not the Bank of Thailand's primary responsibility, but it affirms its readiness to lend a hand in supporting and cooperating with both the public and private sectors, hoping that the Reinvent Thailand project will help revive the Thai economy.

Currently, the government has established the Public-Private Sector Committee for Economic Problem Solving (PPC) to boost the economy. This time, the PPC has a higher chance of success than in previous rounds, because if the economy cannot be improved or revived in this round, it will be difficult in the future. If the PPC and related sectors cannot truly upgrade the economy, Thailand's growth potential, which was previously projected at 2.7% or 3%, may fall to only 2%, becoming a new, lower normal level, which will affect stability.

"If we were to use a football analogy, monetary policy would be like the defenders, primarily responsible for maintaining price stability and the financial system, while fiscal policy and targeted measures would be the forwards, driving the economy forward."

Dr. Surach Tanboon, Senior Director, Monetary Policy Department, Bank of Thailand (BOT). It was revealed that Thailand's overall inflation rate is projected to temporarily rise this year and then decline next year, peaking in the third or fourth quarter of 2026. This is due to a low base in the previous year and the impact of the El Niño phenomenon on fresh food prices. Meanwhile, inflation in June 2026 is projected to fall to 2.4% from 2.8% in May 2026, mainly due to lower fuel prices.

“We estimate that the overall inflation rate in 2569 will be 2.8%. The overall inflation rate will be temporarily higher this year, driven by energy prices and the pass-through of costs to transportation and commodity prices, before gradually declining next year. We forecast the overall inflation rate in 2570 to be at 1.4%.”

However, the risk of inflation cannot be ruled out at present, especially in the third and fourth quarters of 2026, when the risk will stem from El Niño, which will be passed on to fresh food prices.

However, price transmission remains concentrated in the energy sector and goods that use energy as a cost, with no widespread price increases yet visible. Meanwhile, a survey of businesses revealed that 60% expect to raise prices by no more than 10% in the next three months.

Meanwhile, the Bank of Thailand also analyzed behavioral inflation alongside headline inflation figures to understand public sentiment and response to prices. This was done by considering the price index of frequently used goods, such as fresh food. Frequent purchases of these items lead consumers to remember prices and become highly sensitive to price increases.

"When the prices of frequently used goods increase, it affects people's psychology, making them feel that the cost of living is higher than it actually is. This may lead to future behavioral adjustments, such as demanding higher wages to cover common expenses."

This is especially true during periods of high inflation, such as in 2569 or the Russia-Ukraine crisis in 2565. The study found that the price index for frequently used goods shows a clear divergence from the overall inflation index, reflecting that people perceive the high price of these goods more strongly than the average inflation figure suggests.

In addition to behavioral factors, inflation by demographic was also examined. It was found that low-priced goods tend to see sharper price increases than general goods during cost shocks because they have lower profit margins. This directly impacts consumption inequality among low-income groups.

However, despite the rebound in the essential goods and services index, medium-term forecasts remain anchored within the target range. The 5-year medium-term inflation forecast remains within the target range of 1-3%.

"Maintaining interest rates at the current level of 1% is considered an accommodative and appropriate policy given the current economic context, where inflation is driven by temporary supply-side factors. However, if it is found that the increase in inflation is due to overheated demand exceeding monetary policy's capacity, monetary policy is prepared to respond."

The recent decline in crude oil prices has contributed to a decrease in inflation. Whether product prices will fall in line with oil prices depends on the proportion of oil used in the product's cost; the higher the oil usage, the greater the likelihood of a price reduction.

In terms of currency stability. Dr. Surat revealed that The Thai baht has depreciated by approximately 5% since the beginning of the year, following the strengthening of the US dollar. However, the Thai baht remains less volatile than some other currencies, such as the South Korean won or the Indonesian rupiah.

"Interest rate spreads are only one factor in determining currency direction. Other key drivers include global risk and the direction of US policy."

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