Two of Southeast Asia’s largest economies are heading into 2026 with a tilt toward looser monetary policy as they confront a mix of domestic and external risks. Political uncertainty, cautious foreign investors and the impact of US trade tariffs are weighing on growth prospects, prompting central banks in Thailand and Indonesia to recalibrate their policy approaches.
Thailand seeks a weaker baht
The Bank of Thailand cut its one-day repurchase rate by 25 basis points to 1.25%, marking the fifth reduction in 14 months. The decision, widely anticipated by markets, reflects concerns about slowing economic momentum. Officials highlighted the baht’s nearly 8% appreciation this year as a key issue, noting that currency strength has added to pressure on exports and already fragile domestic demand.
The central bank trimmed its growth forecast for next year to 1.5%, citing weak consumption and the drag from US tariffs. Policymakers signaled that further easing could be considered if economic conditions deteriorate or deflation risks intensify.
Indonesia pauses to defend the rupiah
Bank Indonesia, by contrast, kept its benchmark BI-Rate unchanged at 4.75%. The decision underscores the regulator’s focus on maintaining currency stability amid capital outflows and investor concerns over subdued growth and expanding state spending. Protecting the rupiah has taken precedence, even as credit demand remains weak and businesses delay investment decisions due to elevated borrowing costs.
The central bank reiterated that it continues to assess room for future rate cuts, while urging banks to lower lending rates and channel more liquidity into the real economy to support growth.
Shared challenges, diverging FX priorities
Despite facing similar economic headwinds, Thailand and Indonesia are pursuing different monetary paths driven by contrasting currency objectives. Thailand is seeking a softer baht to bolster growth, while Indonesia prioritizes investor confidence and rupiah stability, even if that means delaying further easing.
As International Investment experts report, the divergence between Thailand and Indonesia highlights how currency considerations are increasingly shaping monetary policy in Asia. Looking into 2026, the key challenge will be managing growth risks without triggering financial instability in an environment of heightened global uncertainty.