The BOT said in the meeting minutes that a stronger exchange rate had a limited effect on containing inflation compared with raising interest rates, stoking expectations the central bank may opt for a more aggressive half-point hike in June.
Thailand's central bank has gradually turned more hawkish as concerns about inflation have mounted.
"The inflation data and the minutes confirm what has been a nagging belief among some of us: the next meeting may see a 50 basis point rather than an expected 25 basis points," said the head of research at European Bank in Bangkok.
Reflecting that shift in BOT expectations since Monday's consumer price figures, the interest rate swap curve has flattened sharply.
Two-year Thai swap rates edged up a basis point to 3.40 percent, the highest since November 2008. The spread between two and five-year rates was steady at 48 basis points after having flattened by about 20 bps since late March and touching a two-year low of 44 bps this week.
Paying in Thai baht forwards has led to steady rise in Thai baht forward fixings, the floating leg of swap contracts.
Six month forward fixings have jumped nearly 40 bps in a little more than a month to 2.976 percent, nearly a quarter-percentage point premium to the central bank's main policy rate.
Central banks from Mumbai to Beijing have ramped up their policy tightening campaign to tackle rising inflation sparked by strong growth and surging food and commodity prices. India's central bank surprised by lifting rates a half-point on Tuesday.
This rise in short-dated Thai swaps prompted fixed-income analysts at Societe Generale to recommend clients position for a further flattening of the swap curve, saying the six month swap fixing rate has more upside.
Rising inflation has forced the Bank of Thailand to raise interest rates by six times since July, with its latest quarter point hike to 2.75 percent coming at that April meeting.
Barclays Capital says the risk of a 50 bps hike has risen substantially after the latest inflation print.
In cash bonds, strong demand from domestic banks and insurers has kept the rise in long-term yields limited even as short-term yields are eyeing a more aggressive BOT, reinforcing the flattening pressure on the yield curve.
Primary auctions of long bonds have been well received, in part due to a lack of fresh supply in the market. Tuesday's thirty-year bond sale led a bid-to-cover ratio of nearly 4 times, well above typical results at 2-3 times and showing solid demand.
But in secondary market trading, short-dated bond yields have risen along with swap rates. One-year yields are up nearly 40 bps to 3.10 percent since end March.