Thai inflation at 5-year low raises chance of rate cut soon

Thai inflation at 5-year low raises chance of rate cut soon

BANGKOK - Thai headline inflation eased to a more than 5-year low in December as oil prices declined, giving the central bank leeway to cut interest rates to spur the struggling domestic economy.

With inflation easing amid more pressure on global growth, Thailand is also grappling with subdued domestic consumption, restrained by record-high household debt levels.

Annual headline inflation in December slipped to 0.6 per cent from 1.26 per cent in November, and was far lower than 1.1 per cent forecast in a Reuters poll. The last time the headline rate was lower than December's level was October 2009.

The core inflation rate, which strips out fresh food and energy prices, was 1.69 per cent in December, slightly higher than a 1.57 per cent forecast in the poll.

Inflation in Thailand has been benign, with prices curbed by government controls and subsidies plus weak domestic demand that has been hurt by months of political unrest.

Economists said falling inflation raises the chances for a cut as soon as this month. "There's a possibility to cut the policy interest rate to 1.75 per cent in the next MPC (monetary policy committee) meeting, if the central bank still sees the economy is recovering more slowly than expected," said economist Pimonwan Mahujchariyawong with Kasikorn Research Center.

Senior economist Nuchjarin Panarode with Capital Nomura Securities in Bangkok expects the Bank of Thailand to cut rates by 50 basis points in the first quarter this year mainly due to the impact of low oil prices on inflation.

The Bank of Thailand has left its policy rate steady at 2 per cent since March, when it was cut by 25 basis points to help businesses hurt by the political turmoil. . It next reviews policy on Jan. 28.

The army seized power in May in a bid to end the prolonged political unrest but sectors, badly hit by the turmoil, such as tourism are recovering slowly.

Last month, the central bank cut its 2014 growth forecast for Southeast Asia's second-largest economy to 0.8 per cent from 1.5 per cent and 2015 estimate to 4.0 per cent from 4.8 per cent.

The Commerce Ministry still forecasts annual headline inflation at 1.8-2.5 per cent for this year after prices rose 1.89 per cent in 2014.

The central bank aims to keep core inflation in a range of 0.5-3.0 per cent, and sets policy to achieve that. But it wants to switch to targeting headline inflation.

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