UOB’s Global Economics & Markets Research team, led by Enrico Tanuwidjaja and Sathit Talaengsatya, argues that the latest Consumer Price Index (CPI) data in Thailand confirms inflation is driven by rising costs rather than demand. They maintain headline inflation forecasts of 1.4% for 2026 and 1.2% for 2027, and expect the BoT to maintain the overnight repo rate at 1.00% through 2026 and 2027.

Cost-driven inflation supports BOT’s stable stance

“That said, while we note upside risks, we maintain our headline inflation forecast of 1.4% for 2026 and 1.2% for 2027 and our call on the BoT to maintain the policy rate at 1.00% for the rest of 2026 and 2027.”

“The authorities’ official forecast for 2026 remains at 1.5-2.5%, with a midpoint of 2.0%, based on Dubai crude at USD 75-85/bbl, USD/THB at 32.5-33.5 and GDP growth at 1.5-2.5%; the latest decline path from late May indicates that the 2026 average will be 2.32% BoT official assessment is more hawkish short-term nominal path: nominal CPI is expected to be 2.9% in 2026, or 3.0% after taking into account government measures, before falling to 1.4% in 2027 as the energy shock and base effects fade.

“Let the CPI reinforce, rather than undermine, our view that Thailand is absorbing the negative shock of trade conditions rather than entering a domestic overheating cycle. We maintain our headline CPI forecasts of 1.4% in 2026 and 1.2% in 2027, while monitoring energy costs, fiscal stimulus for the second half of 2026 compared to last year’s low base, wage setting, service prices and currency transmission.

“This distinction has policy implications. It supports our call for the BoT to leave the interest rate at 1.00% until 2026-27: a rate hike would do little to reduce the costs of oil, freight or food, while another broad-based cut would be harder to justify once headline inflation approaches the upper end of the target range. The BoT can only credibly look at the shock if medium-term expectations inflation rates will remain anchored and second-round effects will not spread to wages, service prices and currency shifting.”

“The authorities’ official forecast for 2026 remains at 1.5-2.5%, with a midpoint of 2.0%, based on Dubai crude at USD 75-85/bbl, USD/THB at 32.5-33.5 and GDP growth at 1.5-2.5%; the latest decline path from tardy May indicates that the 2026 average will be 2.32%.

(This article was created with the support of an artificial intelligence tool and has been reviewed by an editor.)