Either a pause or a cut

Standard Chartered Bank (Thai) and Tisco Securities expect a pause for the policy rate, while Nomura Research forecasts another rate cut.
“We expect the policy rate will be maintained this time, as the Thai economy has started a recovery after the floods. The MPC may order a rate pause to see the impacts after cutting the rate twice,” said Usara Wilaipich, senior economist at StanChart.
The MPC has cut the policy rate by 25 basis points twice, to 3.00 per cent, citing the need to provide an accommodative stance to shore up the economy hit by the flood disaster late last year.
Given the rising price of crude oil, the monetary-policy makers may take a cautious stance on inflation, Usara said.
Kampon Adireksombat, senior economist at Tisco Securities, said: “We expect the policy rate to remain unchanged at 3.00 per cent in this meeting and stay at this level throughout the year as inflation risks, particularly from higher oil prices, start increasing.”
The brokerage house forecasts headline inflation – which includes volatile food and energy prices – averaging 3.5 per cent this year. “There is an upside risk [for headline inflation] due to the oil prices,” Kampon said. For every 10-per-cent increase in the price of Dubai crude oil, headline inflation will rise by 50 basis points, according to an estimate by Tisco Securities. Dubai crude is projected to average US$110 this year.
Core inflation, which factors out food and energy, for this year is estimated at 2.2 per cent, well within the central bank’s target of 0.5-3.0 per cent.
However, Nomura Research expects the economic slump the country experienced in the fourth quarter could prompt the MPC to cut the policy rate by another 25 points in its meeting tomorrow.
Gross domestic product fell 9 per cent year on year in the fourth quarter, the sharpest drop since the third quarter of 1998, as the floods hit export-oriented industrial estates heavily. As a result, the economy expanded only 0.1 per cent in 2011.