Bank of Thailand Projects Emergency Loan Decree to Inject 400 Billion Baht Through Direct Aid and State Card Programs, Bolstering GDP by 0.6%

Deputy Governor Don Nakhonthap of the Bank of Thailand's Monetary Policy Division stated at the first Monetary Policy Forum of 2569 that prolonged conflict has impacted Thailand's economy on two dimensions. First, economic growth is expected to slow to 1.5% this year, down from 2.3% in a scenario without the conflict. Second, inflation is likely to rise to 4-5% from the 2-3% range at the start of the year, though officials consider this a temporary spike with inflation expected to moderate next year, depending on when the conflict resolves.

"While inflation may reach 4-5%, we see no signals of stagflation, and this inflation level is not exceptionally high compared to the Russia-Ukraine war period when inflation hit 7-8%, prompting the Monetary Policy Committee to raise rates," Nakhonthap said, noting the current situation does not yet warrant immediate rate increases but requires close monitoring.

Prahnee Sutthisri, Senior Director of the Macroeconomic Division, said the conflict situation remains highly uncertain, depending on intensity and duration. The baseline scenario assumes the conflict will be resolved in the first half of the year with shipping through the Hormuz Strait disrupted only through mid-year before normalizing. Oil prices are expected to remain elevated in the first half before easing in the second half, with crude prices averaging $100 per barrel this year and declining to $80 in 2026, though still higher than pre-conflict levels.

Under a worst-case scenario, the conflict would drag through the entire year with sustained shipping disruptions and oil price spikes, potentially causing supply chain disruptions that impact production and employment.

Regarding the emergency loan decree, the first 200-billion-baht tranche through direct assistance and state welfare card transfers is already factored into the 0.6% GDP growth estimate. The second 200-billion-baht phase is expected to have minimal impact this year pending economic developments.

Surach Thaenbun, Director of Monetary Policy, said preliminary assessments indicate limited risk of second-round inflation effects. However, officials will closely monitor business pricing and medium-term inflation expectations, as this supply-side shock is substantial. "Maintaining the current policy rate accommodates uncertainty across multiple economic scenarios," Surach explained, noting that raising rates too quickly could further dampen the economy while cutting rates might inadequately manage inflation risks given current uncertainty. The Monetary Policy Committee considers the current 1.0% annual policy rate appropriate for supporting economic recovery as inflation remains elevated.