Thailand government to resist monetary easing despite low inflation

Inflation rate just reached 2.7% in March.

According to DBS, the central bank (BoT) is expected to stay on hold today despite the sharp downside surprise in March inflation numbers. Headline CPI reached just 2.7% YoY against consensus expectations of a 3.0% increase. 

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For the first quarter of the year, the annualized rate of inflation stood at just 2%, despite the minimum wage hike in January and generally pro-growth government policies.

Administered control overselected consumer goods and energy prices has been a key element behind stable prices and baht strength has been helping to keep a lid on imported price pressures.

From an inflation perspective, there is room to further lower rates.

However, with domestic growth momentum already very strong,further monetary easing would raise overheating risks. Notably, asset prices have already
run up sharply overthe past year and this has been reflected in the stock market as well asthe property market.

Consumer loans have also surged on the back oflow interestrates and the first carrebate scheme.

Therefore, it is not surprising that BoT has been sounding a cautious note of late. From this angle, room to cut rates becomes a lot more constrained. It will be close, but on balance, we still think that BoT will resist further monetary easing.