The Bank of Thailand is expected to hold the policy rate steady at 2.5% at its meeting later this month, with inflation rising slowly back to the target range, say economists who are urging government stimulus measures to drive the slowing economy in addition to the digital wallet scheme.
Headline inflation last month crept up to 0.8%, compared with the consensus forecast of 0.7% and exceeding the 0.6% uptick in June, providing further indications that price increases are edging nearer to the central bank's target range of 1-3%, said Kuala Lumpur-based Maybank.
Core inflation rose to 0.5%, up from 0.4% in June, the highest reading in six months, said Erica Tay, director of macro research at Maybank.
"The government may roll back subsidies for electricity in the second half of 2024, which would put upward pressure on headline inflation. We expect the consumer price index [CPI] to average 0.9% in 2024, before rising to 1.8% next year," she said in a research note issued yesterday.
A view of the Bank of Thailand. (Photo: Reuters)
The central bank noted "consumer confidence continued to decline due to concerns over higher living costs stemming from rising energy prices, as well as concerns about the sluggish rebound of the Thai economy".
Tourism was the main engine fuelling the economy, with tourist arrivals totalling 21 million year-to-date, an increase of 33% year-on-year.
"With the CPI slowly rising back to the target range, and with public spending projected to increase strongly in the latter half, the Bank of Thailand will be less inclined to ease its policy rate at its meeting on Aug 21," said Ms Tay.
Maybank projects a rate cut of 0.25 percentage points to 2.25% next year and maintained its GDP growth forecast of 2.4% this year and 2.8% in 2025, she said.
Bank of America (BofA) said Thailand's CPI in July is in line with its expectation, but higher than the consensus forecast of 0.70% because of higher oil and food prices. For the first seven months of 2024, headline inflation remained low at 0.12%.
"Thai inflation remains relatively low year-on-year compared with regional countries," said BofA emerging Asia economist Pipat Luengnaruemitchai.
"We anticipate a slight decrease in August because of the base effect and a slowdown in some food prices. However, inflation is expected to rise above 1% in the fourth quarter driven by last year's low base for energy prices. The current inflation trend is in line with the forecast by the Monetary Policy Committee [MPC]. We do not expect this month's inflation to change the MPC's policy stance."
Nattaphon Khamthakruea, director of the securities analysis department at Yuanta Securities, and Amonthep Chawla, chief economist of CIMB Thai Bank, agreed that risks remain for economic growth of less than 2% this year, particularly if the Constitutional Court does not rule in favour of Prime Minister Srettha Thavisin on Aug 14.
"Second-quarter GDP growth is likely to be below 2%," said Mr Amonthep. "We hope more stimulus, particularly quick-win measures, can stimulate the economy."
