The Bank of Thailand has defied mounting pressure to raise interest rates, keeping its benchmark at 1% as Governor Vitai Ratanakorn insists the baht’s slide is driven by global markets, not US rate gaps, while backing stronger exports and a higher growth rate of 2.3%.
The Bank of Thailand has mounted a robust defence of its 1% interest rate, insisting the baht’s slide is being driven by global markets, not the gap with US borrowing costs, despite growing pressure to tighten policy. Governor Vitai Ratanakorn argued the benchmark rate, among the world’s lowest, remains crucial to supporting growth, forecasting stronger exports, 2.3% GDP growth and only temporary inflation despite the oil price shock. His intervention comes as uncertainty over the US Federal Reserve and renewed political pressure place Thailand’s monetary policy under intense scrutiny.
The Bank of Thailand has firmly defended its decision to keep the benchmark interest rate at 1%, rejecting claims that the gap between Thai and United States interest rates is the main cause of the baht’s decline this year.
Governor Vitai Ratanakorn said broader market conditions, not interest rate differentials alone, are driving the currency. His comments came after the Monetary Policy Committee (MPC) voted on Wednesday to leave the policy rate unchanged.
The decision also comes as pressure builds on the central bank to tighten monetary policy to support the baht and contain inflation.
Central banker defends 1% interest rate as pressure grows to bolster the baht and curb rising inflation risks
Mr Vitai said the MPC remains committed to using interest rates as its principal monetary policy tool. He described the current benchmark rate as exceptionally low by international standards.
According to the governor, Thailand’s policy rate is the world’s second lowest after Switzerland and at the same level as Japan. As a result, he argued that monetary policy is already providing substantial support to the economy. He said the central bank’s priority is to sustain growth and improve incomes while global conditions remain uncertain.
“We want to use policy interest rates to support the economy. The ultimate goal is to improve the economy and increase income. It’s about using a more relaxed monetary policy in this changing environment.”
In response to criticism from some economists, Mr Vitai dismissed suggestions that higher interest rates would automatically strengthen the baht. He said exchange rates are shaped by multiple forces.
Governor rejects claims that the baht’s weakness is driven mainly by the Thailand-US interest rate gap
Interest rate differentials are only one factor. Real interest rates must also be considered. Market sentiment, capital flows and international developments also influence currencies. Consequently, he argued it is wrong to attribute the baht’s depreciation solely to Thailand’s lower policy rate.
The governor also rejected concerns that a wider interest rate gap with the United States would inevitably trigger capital outflows. Thailand, he noted, has operated with a significant interest rate differential for many years.
Yet currency movements have varied over time. The latest depreciation, he said, reflects changing market expectations rather than a simple monetary policy comparison.
Notably, the baht has weakened by about 5% during the recent period. Indonesia’s rupiah, however, has fallen by around 8%. That comparison, Mr Vitai said, shows Thailand is not facing exceptional currency pressure. Instead, regional currencies have responded differently as investors reassess global financial conditions and the outlook for United States interest rates.
Weaker baht may aid exporters while temporary inflation is expected to ease again by April 2027
Mr Vitai also suggested the weaker baht has produced some economic advantages. Last year, exporters struggled with an unusually strong currency. That reduced their competitiveness in overseas markets. The current depreciation, he said, follows broader market trends and remains within a manageable range.
“Last year, the baht was very strong, which made exporters uneasy. Now it’s weakening, which follows market trends. As for why it’s weakening, it’s because of the surprise prospect of the US raising interest rates. In recent times, we’ve seen the dollar strengthen, but it’s still within a range that’s manageable for us.”
Separately, the governor addressed concerns over inflation following higher global oil prices. He acknowledged the oil price crisis could temporarily lift inflation during October and November. Even so, he stressed that the central bank expects those pressures to prove short-lived. Inflation is forecast to ease by April 2027 as the impact of higher energy prices fades.
Overall inflation this year is projected at about 2.8%, remaining below 3%. Next year’s forecast stands at 1.4%, although some individual months could record slightly higher readings. On that basis, the Bank of Thailand believes inflation does not currently justify tighter monetary policy. Instead, the central bank continues to view recent price pressures as temporary rather than structural.
MPC says future interest rate decisions will remain data driven as exports continue to strengthen growth
As part of this approach, the MPC will continue reviewing conditions at every meeting. Mr Vitai declined to say whether rates would remain unchanged for the rest of the year. Instead, he said policymakers would rely on the latest available data.
Economic conditions, he noted, are changing rapidly. Therefore, future decisions will continue to be taken on a case-by-case basis.
At the same time, the governor made clear that raising borrowing costs remains a last resort. Higher interest rates would increase financing costs across the economy. They could also slow economic activity. Nevertheless, he said the MPC remains prepared to adjust policy should circumstances require such action.
On another front, the governor highlighted the strength of Thailand’s export sector. Export figures for May exceeded expectations. That performance has reinforced the Bank of Thailand’s economic outlook. The central bank continues to forecast gross domestic product growth of 2.3% this year. Mr Vitai described that as one of the strongest growth estimates, supported by robust export performance despite continuing global uncertainty.
Federal Reserve uncertainty clouds outlook as Bank of Thailand keeps its focus on domestic growth
International developments continue to shape that outlook. Investors remain focused on the next move by the United States Federal Reserve. Many analysts believe the Bank of Thailand could eventually face pressure to follow any future increase in US interest rates.
That outlook has become more complicated, however. Federal Reserve Chairman Kevin Warsh was appointed by President Donald Trump on the understanding that he would maintain relatively low interest rates. Since then, however, inflation linked to the Middle East war has increased pressure on the Federal Reserve to move in the opposite direction.
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For now, the Bank of Thailand remains committed to its current policy stance. Policymakers believe temporary inflation, resilient exports and moderate economic growth support maintaining the 1% benchmark rate.
Meanwhile, officials will continue monitoring inflation, exchange rates, global energy prices and international monetary policy before deciding whether conditions warrant any future adjustment.
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