BOT policy rate hike seen as unlikely after inflation eases

“Inflation is expected to continue to drop in the remaining months as the operating costs of businesses will remain unchanged if interest rates remain steady,” Yanyong Phuangrach, permanent secretary of the Commerce Ministry, said yesterday.
The Bank of Thailand’s Monetary Policy Committee at its meeting on October 19 will likely leave the interest rate at 3.5 per cent because of the reduced need to curb inflation, he said.
Other factors reining in inflation include slower economic growth in the United States and Europe, which weakens support for fuel prices in the world market, and the flood damage in Thailand, which squeezes consumer purchasing power.
The government’s fiscal policies – Bt300 per day for workers and Bt15,000 per month for university graduates, schemes to assist purchases of a first car and first home, and rice pledging – will not make a meaningful difference to this year’s inflation figure, Yanyong said.
“Although inflation in the first nine months has gone slightly beyond the target to 3.75 per cent, the annual inflation target of 3.7 per cent should be met.”
Month on month, the Consumer Price Index was down by 0.33 per cent, mainly on fuel prices falling by 8.02 per cent and public transport fares by 0.99 per cent, while vegetable and fruit prices were up by 4.14 per cent.
Year-on-year inflation reflected food and beverage prices jumping by 8.84 per cent and non-food prices rising by 1.07 per cent.
Last month, core inflation, which excludes volatile food and fuel prices, was 2.92 per cent year on year and 0.10 per cent month on month.
In the first nine months, core inflation came in at 2.21 per cent year on year, well within the central bank’s annual target range of 0.5-3.0 per cent.
September inflation, at 4 per cent, was marginally above the consensus of 3.9 per cent but still much lower than 4.3 per cent in August, convincing Barclays Capital that no more |policy-rate hikes will be forthcoming this year or in the first half of next year.
From its research, the bank believes that the central bank will turn less hawkish.
“The BOT should remain on hold given that core prices are less likely to breach the upper band of the target, in our view, though they may remain close to the top.
“We believe the next key event to watch for is the announcement of inflation targets for 2012, which is expected in two weeks. While we do not expect a major change in the targets, we think they could be moved marginally higher from the current level of 0.5-3 per cent for core inflation.”
Inflation peaked in August and eased in September mainly on the decision to slash excise duties on petroleum products, it added.