Bank of Thailand chief Veerathai Santiprabhob signalled the Monetary Policy Committee (MPC) is likely to stand pat on the policy rate to support economic growth and help inflation climb back to its target range.
The MPC agrees monetary policy should remain accommodative for a certain period to strengthen economic growth and considering risks to financial stability, he said.
Mr Veerathai wrote an open letter to Finance Minister Apisak Tantivorawong on behalf of the MPC's chairman, clarifying why average headline inflation last year was below the lower band of the inflation target.
However, the MPC estimates further easing of monetary policy would not significantly accelerate headline inflation to the target range, and such a move could create a negative impact rather than be a boon, he said.
The subdued inflationary pressure stems from supply side and structural factors, while monetary policy has limited the efficiency of these factors, said Mr Veerathai.
A significant policy rate cut is needed if policymakers want to see a rapid increase in inflation, but it would build up financial fragility in the future as search-for-yield behaviour will cause higher under-pricing of risks, he said.
"The need to further ease monetary policy is reduced," said Mr Veerathai.
"Moreover, a policy rate cut may have a negative impact on household savings in the long run, reflected by the high ratio of households whose savings for retirement are insufficient, and that trend is on the rise."
The MPC has kept the policy rate on hold near a record-low 1.5% since April 2015.
The next policy rate call has been scheduled for Feb 14.
He said the decline in fresh food prices was because of a bigger supply of farm products and a high base effect from drought in 2016.
A gradual pick-up in domestic demand also contributed to low inflation, said Mr Veerathai.
Moreover, intensified price competition, technological development, which leads to cheaper production costs, and the popularity of e-commerce were contributors to the subdued inflation, he said.
The headline inflation rate was 0.66% in 2017, well below the central bank's inflation target range of 1-4%.
The Bank of Thailand forecast headline inflation of 1.1% this year and consumer prices are expected to reach the lower band of the 1-4% target range in the first half of the year based on both demand-pull and cost-push inflation.
The MPC said supply side factors driven by fresh food and energy prices are a risk factor that could prevent the inflation forecast from taking hold.
The committee will closely monitor the development of structural factors on inflation, standing ready to use tools to help inflation climb back to the target range, said Mr Veerathai.
Low crude oil prices seemed to accommodate Thai economic growth, helping keep production and transport costs as well as the cost of living tepid, he said, though this also led to weak inflation.