Thailand: Policy cut case builds – UOB

UOB economists Enrico Tanuwidjaja and Sathit Talaengsatya expect the Bank of Thailand to cut the 1-day repurchase rate by 25 bps to 1.00% at the 25 February MPC meeting and see this as the terminal rate. They argue weak growth, subdued inflation and manageable financial stability risks justify an insurance easing within a low neutral-rate environment.

UOB sees 1.00% as terminal rate

"We maintain our view that the BOT is likely to cut the policy rate (1-day repurchase rate) by 25bps to 1.00% at the 25 Feb 2026 MPC meeting, from 1.25% currently. We see this as the terminal rate for the cycle."

"That said, when we frame the decision through the BOT’s flexible inflation targeting (FIT) objectives—growth, inflation, and financial stability—the balance of risks still supports a final cut."

"In our view, when growth is projected to run below potential for an extended period, monetary policy has a stronger case to act as insurance to reduce cyclical drag while complementary tools work through."

"In our view, 2026 cyclical nominal neutral, given depressed inflation expectations, is in the range between 0.75% and 1.25% (midpoint: 1.0%). Based on a simple Fisher’s equation, when expected inflation is very low, the nominal neutral rate that corresponds to a given neutral real rate is also low."

"Therefore, a cut to 1.00% would move policy closer to Thailand’s near-term neutral or mildly accommodative in real terms, helping support demand and reduce debt-deflation risks — without pushing policy into an aggressively low regime that could amplify search-for-yield behavior and longer-run financial stability concerns."

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