MUFG said the coming week in Asia is set to be shaped by geopolitics, inflation and central bank decisions, with different policy paths affecting regional currencies. It expects the Bank of Korea to keep rates unchanged.
MUFG expects the Bank of Korea to signal an extended hold through 2026, citing rising house prices and a volatile won. It also said the Bank’s growth forecasts could be upgraded at the meeting.
Bank Of Korea Outlook
MUFG expects the Bank of Thailand to cut rates by 25bps, pointing to negative inflation and a weak growth outlook. It noted recent election results have provided better clarity.
MUFG expects China’s loan prime rates to stay unchanged, with clearer direction possibly after the National Party Congress, Two Sessions and the full 15th Five-Year Plan in March. It also said Australia’s January CPI will test conditions after the Reserve Bank’s recent rate rise, with inflation expected to ease but remain above target, supporting a hawkish bias while policy stays on hold.
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We see the Bank of Korea holding its policy rate steady through 2026, especially as Seoul apartment prices continued their climb with a 1.5% gain last month. The volatile Won, with one-month implied volatility currently elevated near 11%, also supports this extended hold. This suggests derivative plays on a range-bound or stronger KRW, perhaps by selling Won puts against currencies with easing central banks.
Bank Of Thailand And China Implications
In contrast, we expect the Bank of Thailand to cut its rate by 25 basis points soon, given the economic pressures. With inflation remaining negative for a fourth straight month at -0.4% in January and Q4 2025 growth coming in at a sluggish 1.2%, a rate cut seems almost certain. This reinforces our view to use forwards or options to position for further Thai Baht weakness against its regional peers.
For China, we see loan prime rates remaining unchanged for now, as January’s industrial output and retail sales figures offered no urgent reason for an immediate move. More significant policy direction is likely being held back until the National Party Congress in March. This period of waiting could be an opportunity to structure low-cost volatility trades on the Yuan, such as long straddles, anticipating a larger move next month.
The upcoming Australian January CPI report will be a major test, especially after the Reserve Bank’s surprise rate hike late in 2025. We expect inflation to have eased slightly to around 4.2%, but this remains well above the central bank’s target, reinforcing their hawkish stance. Derivative traders should therefore maintain a bias for AUD strength, particularly against currencies with a more dovish outlook like the Thai Baht.
