The Bank of Thailand (BOT) is changing its approach. Instead of just focusing on interest rates, it is expanding its policy to address bigger economic issues like low productivity and high inequality. While the central bank keeps interest rates low, a report suggests a final cut of 25 basis points in February 2026, bringing the policy rate down to 1.00%. This low rate is likely to remain through 2026 and 2027. The BOT is concerned about the strengthening of the baht and some unusual currency flows, especially those linked to gold. At times, these flows can make up 20% of daily foreign exchange activity. Since early 2025, the baht has risen about 8% against the US dollar. To manage this, the BOT is ready to step in if the currency moves too quickly and will also enforce tighter rules on gold-related foreign exchange. While maintaining a supportive monetary policy, the BOT is careful not to keep rates too low for too long. Financial stability and flexibility in policy are key priorities. For 2025, the economic growth forecast is set at 2.0%, highlighting the need for a balance between supporting the economy and addressing structural issues. An interest rate cut from the Bank of Thailand seems very likely later this month. Final GDP data for 2025 shows weak growth of only 1.9%, and January 2026 inflation numbers are below the central bank’s target. This situation strengthens the argument for the Monetary Policy Committee to approve a 25 basis point cut at the meeting on February 25th. The expected move to a 1.00% policy rate, which should last through 2027, suggests that short-term interest rate fluctuations will drop after the meeting. The market has largely anticipated this cut, so now is the time to prepare for a stable interest rate period. Strategies that perform well in a steady interest rate environment should be explored. We should also pay close attention to the Thai baht, which has gained significantly since early last year. The baht increased about 8% against the US dollar due to foreign investment, causing concern for the central bank. The BOT is now clearly prepared to act if the baht strengthens too quickly. This proactive approach suggests there may be a limit to how much the baht can appreciate, making it risky to invest in continued strength in the near future. Selling volatility on the USD/THB exchange rate through options is a practical strategy since central bank intervention will likely prevent sharp decreases in the currency pair. We can expect that if the baht tries to rise above the 32.50 level, the central bank will intervene.

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