Thai headline inflation accelerates below expectations, BoT likely to maintain accommodative stance

Thailand’s headline inflation accelerated in November, but it came below market expectations. The inflation accelerated on the back of base effects in spite of a contraction in sequential terms, noted ANZ in a research report. The country’s consumer prices rose 0.6 percent year-on-year in November, a rebound from October. Meanwhile, core inflation decelerated slightly to 0.72 percent year-on-year, consistent with projections. There are downside risks surrounding the rebound in domestic activity maintaining weak expectations on inflation, said ANZ.

Thai domestic activity indicators point towards easing of sequential growth in the fourth quarter. Public spending continues to be the main growth driver on the back of measures to improve efficiency of disbursements. Yet, the tourism sector, which is another driver of growth, slowed in October amidst the crackdown of illegitimate tour operators. Moreover, Thai tourists went on fewer domestic travels that show certain slowdown in private consumption. Contractions in the leading indicators of private investment, such as capital goods imports and construction activity, also indicate towards prolonged softness in the medium term.

“Headline inflation will likely rise to the lower half of the central bank’s 1-4 percent target range. Barring another round of oil price declines, headline inflation should maintain its slow ascent in 2017”, added ANZ.

But, private activity is likely to recovery weakly, limiting consumer price gains. Credit growth continues to remain sluggish at 5.6 percent year-on-year in September. The nonperforming loan ratio has been growing in the past three quarters. Therefore the Bank of Thailand is likely to continue with its accommodative stance and keep its policy rate unchanged through 2017, according to ANZ.