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1 Jun 2011

Thai Economy

Thai Inflation and Interest Rates Likely Not to Peak (Business Brief No.3119)

คะแนนเฉลี่ย
Consumer product prices continued to surge in May 2011, thus increasing the Thai inflation rate to the highest level in 32 months at 4.19 percent YoY for Headline Inflation and 2.48 percent YoY for Core Inflation. Rising inflation pressure has had an impact on the monetary policy stance of the BOT. Recently, the BOT Monetary Policy Committee (MPC) at their fourth meeting of this year increased their 1-day R/P key policy rate by 0.25 percent to 3.00 percent, up from 2.75 percent previously and specified that interest rates would continue the upward trend to supervise inflation risk.
KResearch anticipates that inflation overall, with greater pressure expected during 2H11 – particularly in 4Q11 when Headline Inflation may approach 5 percent YoY and Core Inflation may stay above 3.0 percent YoY, the upper limit of the BOT's inflation targeting framework of 0.5-3.0 percent - may highlight the importance of “high inflation and price stability supervision” as a key factor that will influence the BOT's monetary stance toward further tightening at the four remaining meetings scheduled for this year.

Due to signals in the recent MPC statement implying the need for supervision of inflation risk via the upward trend in Thai policy rate, KASIKORNBANKGROUP expects that the MPC may increase their policy rate once again at their meeting in July 2011 by another 0.25 percent to then reach 3.25 percent. This upward trend may continue throughout this year if economic growth momentum continues amid a recovery in major industrial production (after pausing during 2Q11 due to the disaster in Japan), in tandem with high inflation pressure that has not yet reached the expected peak of this cycle.

Thai Economy