The Bank of Thailand (BoT) is expected to maintain its benchmark policy rate at 1.5 percent for a prolonged period of time. There is only a small chance of seeing headline inflation back above 2.5 percent in the next 2 years, which means plenty of time for the BoT to maintain its accommodative policy stance.

Core inflation is likely to have remained low at 0.6 percent y/y in May. Core inflation has been sub-1 percent for two years running now, its longest stretch ever. Except for the immediate aftermath of the 2008-09 crisis, the current core inflation print is also at a multi-year low.

"Not surprisingly, the central bank continues to stress on weak demand-pull inflationary pressures. If the sustained moderation in loan growth suggests poor sentiment among businesses, we may indeed see core inflation staying below 1 percent for longer than previously expected," DBS Bank commented in its latest research report.

Only a marked improvement in private consumption and or investment growth will be able to push core inflation above 1 percent in the medium-term. Meanwhile, headline inflation is expected to remain soft as well, particularly if food inflation stays modest.