Bangkok:Krungthai COMPASS expects the Monetary Policy Committee (MPC) to maintain the interest rate at 1.00% until the end of 2027. This decision follows the MPC's unanimous choice to keep the policy interest rate steady at 1.00% per year, coupled with an upward revision of the 2026 economic growth forecast to 2.4% from 2.3%. The adjustment is attributed to robust export activities and private sector investments driven by advancements in technology and the AI cycle.
According to Thai News Agency, Krungthai COMPASS predicts the continuation of the 1.00% interest rate amid an economy that is recovering in a K-shaped pattern and remains below its potential. However, there is a need to monitor the impact of the interest rate differential between the US and Thailand on the movement of the Thai baht. The currency has shown weakness during periods of changing market expectations concerning the Federal Reserve's interest rate outlook, resulting in volatility in capital flows.
The interest rate differential poses two key risks. Firstly, the movement of the Thai baht is significant. Since the US Federal Reserve raised interest rates on September 16, 2026, the differential widened to 317 basis points by the end of 2026, marking the largest gap in the region. This period saw a 0.7% depreciation of the baht, the second largest after the Japanese yen. Even when market expectations of a Fed rate hike lessened in October 2026, leading to a narrowed spread of 306 basis points, the baht still fell by 0.7%, showing notable weakness compared to other Asian currencies.
Secondly, the changes in interest rate differentials affect capital flows, influencing foreign investment decisions. In late September, as market expectations for the Fed's interest rate peaked, foreign investors sold a net 27 billion baht worth of bonds and stocks within three business days. Conversely, when expectations decreased in October, foreigners returned to net buying of bonds totaling 15 billion baht. Such volatility in policy interest rate trends impacts capital flows and the movement of the Thai baht.
The resulting uncertainty in the baht exchange rate from these dynamics will exert pressure on risk management, especially in international currency transactions and external stability. Consequently, it is essential to closely watch the volatile financial market situation.