Here are 2 sides of Thailand's weak GDP and falling inflation

2.4% inflation forecast has been penciled in.

According to DBS, its 2013 and2014 inflation forecasts have been revised down to 2.4% (from 2.9% previously) and 3.5% (from 3.7% previously) respectively.

DBS noted that from a growth/inflation standpoint, slowing GDP growth and falling inflation implies that the central bank (BoT) has room to maintain loose monetary policy and there may be increasing pressure on BoT to cut rates in the coming months.

"However, from a risk perspective, BoT has been sounding out concerns about the elevated level of household debt. Notably, the divergence in consumption credit and investment credit growth(individual loangrowthoutperformedbusiness loan growth) has persisted over the past few months," said DBS.

Here's more:

On the external front, the normalizing ofinterestratesin the intermediate and longer-term segments of the yield curve in the US has also put upward pressure on Thairates.

Elevated household debt and the risks of a further rise in interest rates in the medium term suggest that room for rate cuts may be limited. For July, we project inflation to remain at 1.9% YoY.

Price pressures have been negligible in the five months ending June. In MoM sa terms, there was deflation from February to April while prices were flatin May and June. As a result, headline inflation fellfrom 3.6%YoYin Decemberto 1.9%YoYin June. Depressed commodity prices have gone a long way towards keeping inflation in check.

Moreover, economic momentum has slowed, easing pressure on the demand side. In the coming months, price pressures are likely to stay muted asthe global economy remains lackluster.

With delays in the implementation of the public infrastructure plans, a pickup in public investment spending is also likely to take place only in mid-2014 (compared to 2H13 previously).

Consequently, domestic demand-pull inflation is also not likely to materialize and headline inflation islikely to hover around 2% forthe most part of 2H13.

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