For Phuket property buyers, especially those financing purchases or managing rental investments, the question is not just how high inflation goes, but whether the Bank of Thailand moves on interest rates in response. This week, the central bank signalled that inflation will peak at 5.2% in October but that policy rates will remain unchanged for now.
That stability matters. Mortgage costs, rental yields and buyer confidence are all sensitive to interest rate shifts. The bank’s decision to hold reflects its view that the current inflationary pressure is temporary, driven largely by oil imports and government subsidy programmes rather than sustained demand-side overheating.
What is driving the inflation forecast
Speaking at the Governor Connect event this week, Bank of Thailand governor Vitai Ratanakorn outlined three main factors pushing up inflation: rising oil imports, supply shortages linked to prolonged conflict in the Middle East, and the government’s B400 billion emergency loan decree.
The decree funds two major programmes. The first is the B200 billion ‘Thais Help Thais’ subsidy scheme, running from June to September this year, designed to help households cope with rising living costs. The second B200 billion tranche is allocated to energy transition initiatives.
The subsidy scheme is expected to gradually push up headline inflation as government spending increases domestic demand. But the governor said the spike is expected to be temporary, with inflation easing significantly in the second quarter of next year to 1.3%, assuming the Middle East conflict ends.
In April, imports surged 49% year-on-year, while exports excluding gold rose 23.4%. The result was a trade deficit of US$6.8 billion and a current account deficit of US$7.6 billion, largely due to $7.4 billion in oil imports.
The Bank of Thailand’s response
Despite the inflation forecast, the central bank is expected to maintain its policy interest rate. The regulator stated that inflationary pressures are not considered severe at this stage, and the bank stands ready to adjust monetary policy only if economic conditions change.
With the emergency loan decree factored in, the Bank of Thailand now expects average headline inflation of 3% this year, easing to 1.4% in 2027. Prior to the decree, the forecast was 2.9% this year and 1.5% next year.
The central bank also upgraded its GDP growth forecast to 2% from 1.5%, with private consumption growth predicted to reach 2.6%, up from 1.6%. The projections are based on the subsidy scheme supporting household spending during the period of elevated costs.
What this means for Phuket property
For buyers considering mortgaged purchases in Phuket, the key point is that borrowing costs are expected to remain stable in the near term. If the central bank holds rates, mortgage repayments will not face upward pressure from policy changes, though individual lenders may adjust spreads based on their own risk assessments.
For landlords and rental investors, rising inflation affects operating costs—maintenance, utilities, labour, materials—but stable interest rates mean debt servicing costs should not increase. Whether rental rates can be adjusted upward to offset inflation depends on demand, tenant mix and lease terms.
The subsidy scheme may provide short-term support to domestic purchasing power, which could benefit local demand for rental properties, retail and service businesses in Phuket. However, the scheme is temporary, running only through September.
The central bank’s expectation that inflation will ease sharply by mid-2027 suggests that cost pressures are considered manageable over the medium term. But the forecast depends on assumptions about oil prices and the end of the Middle East conflict, both of which remain uncertain.
What remains unclear
The Bank of Thailand’s inflation forecast is based on the assumption that the war in the Middle East will end, allowing global oil prices to stabilise. If the conflict continues or intensifies, oil import costs could remain elevated, keeping inflation higher for longer.
The central bank also expects Thailand’s trade balance to return to surplus territory in the fourth quarter as exports continue to expand and imports decline with stabilising oil prices. Export value of goods is forecast to grow by 12-13% this year. If export growth falls short or import costs remain high, the current account position may not recover as quickly as projected.
For property buyers, the detail worth watching is whether the central bank maintains its neutral stance through the remainder of the year. If inflation persists beyond the October peak or economic conditions shift, the bank has indicated it will adjust monetary policy accordingly.
Frequently Asked Questions
Will mortgage rates in Thailand increase due to inflation?
The Bank of Thailand expects to maintain its policy interest rate despite inflation peaking at 5.2% in October. This suggests mortgage rates linked to the policy rate should remain stable in the near term, though individual banks may adjust lending spreads based on their own assessments.
How long will inflation remain elevated in Thailand?
The central bank forecasts that headline inflation will peak at 5.2% in October this year, then ease significantly to 1.3% by the second quarter of 2027. The forecast assumes the Middle East conflict ends and oil prices stabilise.
What is the government subsidy scheme and how does it affect property demand?
The ‘Thais Help Thais’ subsidy scheme is a B200 billion programme running from June to September this year, designed to help households cope with rising living costs. It may provide temporary support to domestic purchasing power, which could benefit local rental demand in Phuket, though the effect is limited to the subsidy period.
Could the Bank of Thailand change interest rates later this year?
The central bank stated it stands ready to adjust monetary policy if economic conditions change. If inflation persists beyond the expected October peak or if other economic pressures emerge, the bank may reconsider its current stance.
How does rising inflation affect Phuket rental property investors?
Rising inflation increases operating costs such as maintenance, utilities and labour. With stable interest rates, debt servicing costs should remain unchanged. Whether rental income can be adjusted upward to offset inflation depends on demand, tenant mix and lease terms.
Sources
- The Phuket News — Inflation set to top 5% — link
- Bangkok Post — Referenced in The Phuket News article
