The Bank of Thailand said there is a growing probability that headline inflation will ease below its target range this year because of falling oil prices, while reiterating that its monetary policy stance remains appropriate.
"The probability is always there" that it may ease below the target, senior director Roong Mallikamas said in an interview today in Bangkok. "With oil prices coming down, the probability has increased."
Thai and foreign shoppers on their way passing a sale-promotion banner at a shopping centre in Bangkok Jan 7. The Bank of Thailand said there is a growing probability that headline inflation will ease below its target range this year because of falling oil prices. (EPA photo)
Thailand switched to using headline inflation to guide its monetary policy at the start of the year after having used the core measure, which excludes fresh food and fuel, since 2000. Central bank governor Prasarn Trairatvorakul said yesterday he won't be too concerned even if the target is missed, as disinflation from falling oil may be temporary and price gains will normalize with time.
"The domestic economy seems to be bottoming out and even though inflation is slowing below target, the central bank probably doesn't need to cut the policy rate," said Toru Nishihama, an economist covering emerging markets at Dai-ichi Life Research Institute Inc. in Tokyo. "BOT is likely to stay on hold for a while, at least to the end of the first quarter."
Inflation eased to 0.6% in December, the slowest pace in five years. Price gains may remain below 1% this month, Mr Roong said. The central bank's target for this year is 2.5%, with a range of 1.5 percentage points either way.
With crude oil sliding below $50 a barrel, the Thai central bank may revise down its assumption of $70 per barrel for this year and its headline inflation forecast of 1.2%, in its next monetary policy report on March 20, Mr Roong said. The next rate-setting meeting is on Jan 28.
Remains supportive
The central bank has kept its benchmark one-day bond repurchase rate unchanged since cutting it in March. The current rate of 2% is "already accommodative" and remains supportive of economic recovery, she said.
The monetary authority last month cut its forecasts for gross domestic product growth in 2014 and 2015 after the economy expanded 0.6% in the third quarter from a year earlier, below analysts' estimates.
Thailand's high household debt has become "less of an obstacle" for the monetary policy decision, Mr Roong said. The central bank sees no need to introduce any new measures to rein in debt because the pace of increase has slowed, she said.
Household debt rose 7.7% to 10.22 trillion baht at the end of the third quarter from a year earlier, from an 8.1% gain in the previous three months, data showed.