Thai rate cut may ease pressure on fund flows into bonds: BOT
TL;DR
The Bank of Thailand cut its policy rate to 1.00% to support economic recovery amid weak growth and high debt. This may ease pressure on bond fund flows by reducing yields, but effectiveness depends on reforms and external factors.
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Thai rate cut may ease pressure on fund flows into bonds: BOT
Thai Rate Cut May Ease Pressure on Fund Flows Into Bonds: BOT
February 25, 2026
The Bank of Thailand (BOT) cut its policy interest rate to 1.00% from 1.25% on February 25, 2026, in a 4-2 vote by the Monetary Policy Committee (MPC), marking the second consecutive rate reduction aimed at supporting economic recovery. The decision follows weaker-than-expected growth in 2025, driven by high household debt, sluggish consumption, and a slow tourism rebound. While Q4 2025 growth exceeded forecasts due to stronger private investment and exports, the MPC projects continued below-potential expansion in 2026 and 2027.
The rate cut is expected to ease financial conditions for households and small-to-medium enterprises (SMEs), reducing borrowing costs and debt servicing pressures. However, credit expansion remains constrained, particularly for high-risk SMEs, as lenders maintain cautious lending practices. The MPC emphasized the need to monitor monetary policy transmission and targeted financial measures to support vulnerable sectors.
The move may indirectly alleviate pressure on fund flows into Thai government bonds. Lower policy rates typically reduce the attractiveness of bond yields, but the MPC's focus on stabilizing growth and controlling inflation—projected to remain low with deflationary risks—could temper capital outflows. Additionally, the appreciation of the baht against the U.S. dollar, driven by global interest rate trends and domestic factors, has raised concerns for exporters. The MPC will closely monitor exchange rate movements and their impact on financial stability.
The MPC acknowledged structural challenges, including competition in the technology sector and delayed fiscal measures, which could weigh on growth. While the rate cut signals accommodative intent, its effectiveness will depend on broader economic reforms and external conditions, including U.S. tariff policies and global demand. Investors are advised to track upcoming data on consumption, exports, and inflation for further clarity on the central bank's trajectory.
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MPC cuts interest rate to 1.00%, Nation Thailand
