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Asean inflation prints have been largely benign, barring idiosycratic pressures.
Indonesia’s inflation quickened to 2.9% yoy in Dec25 vs 2.7% yoy month before, but within the official target range. The year-on-year buoyancy was driven by food (red chillies, rice, seafood etc), utility tariff increases, education and precious metals (gold). This period coincided with deadly floods in some parts of the country, which likely added to supply side price pressures especially in perishables. Annual inflation averaged 1.9% yoy in 2025, close to our forecast of 2.0%. Base effects will be adverse in 1Q26 as local stimulus measures in the corresponding period year ago had led the quarter’s inflation to slow to 0.6% yoy. Accordingly, our forecast is for the headline to accelerate to 3.5-3.7% yoy in Jan26 (due to be released in Feb). While the central bank will retain its dovish language, guidance will be cautious in January in midst of firm inflation, supported growth momentum and a weaker rupiah, backing a rate pause. Monetary easing will be opportunistic this year, aligning with the expansionary fiscal tilt. The year’s first bond auction attracted strong demand due to improved foreign appetite and ample domestic liquidity. Separately, the finance ministry withdrew IDR 75trn of funds that were earlier infused into state owned banks, given limited impact of these funds on credit activity. The ministry instead proposed to deploy these towards the central and regional government spending. This was part of the ministry’s efforts to shift a proportion of their surplus cash balance into banks last year. We had noted back then that liquidity markers were already at sufficient levels, suggesting that any positive impulse to credit activity will also need an improvement in demand from households and corporates.
Philippines’ inflation exceeded expectations to rise 1.8% yoy in Dec25, propped by the impact of typhoons on food production and supplies. In wake of the release, BSP Governor Remolona signaled that one more rate cut was likely this year, as early as Feb26, beyond which the benchmark rate was “very close to where we want’. Our baseline projection is for one more cut beyond Feb to the neutral rate of 4% to address downside risks to growth. Prospect of further rate cuts and consequent compression in the PH-US rates, besides absence of a strong resistance to depreciation pressures, weighed on the peso as it weakened to a fresh low past 59/USD on Wed. The BSP’s growth forecast stands at 5.4% for this year vs 4.6% in 2025, aligning with the government’s downward revision to 5-6% range from 6-7% earlier and compared to 4.8-5.0% in 2025.
Inflation in Thailand remained below the BOT’s target for the tenth consecutive month in Dec at -0.3% yoy due to supply-side factors. The BOT has been monitoring deflationary risks amidst a soft economy, as per its December monetary policy statement. Economic growth will likely slow in 2026, due to the delayed drag from US tariffs, challenges to private consumption and foreign tourism, as well as dampened investor sentiment amidst political uncertainty from the February elections. The BOT cut its policy rate unanimously by 25bps to 1.25% in Dec with a dovish bias, and we expect further reduction to 1.00% in 1H26 to support growth and credit conditions amidst weak price pressures.
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