Thai Baht: Inflation rise and THB downside risks – Commerzbank

Commerzbank economists note Thailand’s September CPI rose 2.8% year-on-year, below consensus but the highest since April, bringing headline inflation close to the upper end of the Bank of Thailand’s target range. They expect headline inflation to rise further on persistent supply-side pressures, yet see demand-side forces as benign. USD/THB fell to 33.62, though downside risks to the Baht remain elevated.

BoT seen on extended hold

"September CPI inflation surprised to the downside, rising 2.8% yoy (Bloomberg consensus: 3.1%) vs 2.5% in August, driven mainly by higher energy and food prices. The Commerce Ministry lowered its 2026 inflation forecast to 1.8-2.2% from 1.5-2.5% initially as year-to-date inflation averaged around 1.5%. Nonetheless, the September data was the highest inflation reading since April and the headline inflation is approaching the upper end of the Bank of Thailand’s (BoT) target range of 1-3%."

"Looking ahead, headline inflation is likely to rise further in the final months of the year. The myriad of supply-side pressures are expected to persist. Fuel prices should remain elevated due to continued energy supply chain disruptions while food prices should rise from crop damage amid recent flooding. Nonetheless, high household debt and elevated cost of living limits the purchasing power of Thai consumers, suggesting that demand-side pressures should remain benign in the months ahead."

"The September data do little to alter the BoT’s policy outlook: the rise in headline inflation remains largely supply-driven, while core inflation and medium-term inflation expectations remain well-behaved. This reinforces our view that the BoT is likely to keep the policy rate at 1.00% for an extended period rather than respond to a temporary supply-driven rise in headline inflation."

"In FX, USD/THB fell 0.2% to 33.62 yesterday amid easing oil prices and a softer USD. However, downside risks to THB remain elevated. The yield spread between the 10Y US Treasury and 10Y Thai government bond widened to 291bps, the largest in a year, reducing the attractiveness of THB-denominated assets."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)