2 biggest reasons behind Thailand's 1.9% inflation forecast

Will the central bank cut rate?

According to DBS, inflationary pressures have been non-existent over the past two quarters as headline inflation dipped from 3.6% YoY in end-2012 to 1.9% YoY in June.

DBS expects July’s inflation to remain at 1.9% YoY. Two key factors – a loss of momentum in the domestic economy and subdued commodity prices – have been critical towards driving down headline inflation.

Here's more:

Both of these factors are likely to remain in play in the coming months. Firstly,the domestic economy is not likely to see a significant pick up until public infrastructure spending gets ramped up (possibly in mid-2014, compared to expectations of 2H13 previously), implying limited demand-pull inflation in the short term.

Secondly, lackluster China growth also suggests that commodity price increases are likely to be muted overthe medium term. With inflation likely to be in check in the coming few quarters, there will be increasing pressure on the central bank (BoT) to cut the policy rate.

However, room to further ease monetary policy will be constrained by the elevated level of household debt.