BANGKOK, Jan 7 (Reuters) - Thailand's central bank said on Wednesday the economy is facing challenges, including a sustained decline in competitiveness, with exports expected to be negatively affected by U.S. tariffs and the persistently overvalued baht.
Southeast Asia's second-largest economy has been struggling with an appreciating currency, U.S. tariffs, high household debt, a border conflict with Cambodia and political uncertainty ahead of elections in early February.
"This year there is a lot
of uncertainty," said Bank of Thailand deputy governor Piti Disyatat.
"Policy room is low, but that doesn't mean there is none," he told reporters. "If we think it is necessary then it will be used."
In a report released ahead of a policy forum, the Bank of Thailand said that GDP growth in the second half of last year is expected to have reached 1.3% year-on-year, with exports up 9.1% over the period.
The headline consumer price index dropped 0.28% in December from a year earlier, following an annual fall of 0.49% in the previous month, the commerce ministry said on Wednesday, to remain well below the central bank's inflation target range of 1% to 3%.
Core CPI, which excludes volatile energy and fresh food prices, rose 0.59% in December from a year earlier.
According to figures from the trade ministry, the headline CPI dipped 0.14% over 2025 compared to a year earlier, dragged down by lower fuel and electricity prices. The ministry said it expected headline inflation to be in a range of -0.5% to 1% in the first quarter of 2026 and at 0.0% to 1.0% for the year as a whole.
The central bank said medium-term inflation expectations were still anchored within the 1% to 3% target range, but said the possibility of deflation could not be ruled out.
"At this time, we think there is no deflation risk," said Sakkapop Panyanakul, director of the bank's Monetary Policy Group. "We are not seeing it yet, but it is an issue that must be monitored."
The central bank also said the strong baht was tightening liquidity for small- to medium-sized exporters, which is weighing on shipments. The currency gained more than 10% against the dollar last year.
On Tuesday, the BOT's Piti told the Reuters Global Markets Forum that economic growth was expected to have turned positive in the fourth quarter of 2025, and he expected last year's growth forecast of 2.2% would be met.
(Reporting by Chayut Setboonsarng and Thanadech Staporncharnchai; Writing by David Stanway; Editing by Martin Petty and John Mair)
