Rate to be on hold on low inflation: HSBC

Bank of Thailand, like most of the other central banks in Asia - is likely to leave monetary policy on hold for now as inflation seems to be under control, HSBC said.
 "With core inflation well within its target range of 0.5-3 per cent, there is room to ease further still should developments in Europe take an unexpected turn for the worse," it said in the global research.
 The research was released after the announcement of the June inflation data. Headline inflation rose 2.6 per cent on year in June (against 2.5 per cent on year in May). This was in line with market expectations, and a tad higher than HSBC's expectation of 2.5 per cent. On a seasonally adjusted basis, sequential inflation remained steady at 0.2 per cent.
 Meanwhile, core inflation, which strips out energy and fresh food prices, eased to 1.9 per cent on year from 2.0 per cent previously. On a seasonally adjusted basis, core slowed to 0.1 per cent from the previous month from 0.2 per cent month-on-month in May.
 HSBC Global Research attributed the low inflation to various subsidies and price controls by the government. A postponement of the re-imposition of levies on certain fuels and an extended freeze on electricity charges, transport fares and basic household items has made sure that pressure from wage increments and recovery in real demand following the floods is not being transmitted through to consumer prices.
 "We believe that inflationary risks are not as latent as the BOT thinks. While Europe now has a rough roadmap out of the debt crisis, it will take a long time to heal economically. Second, political dynamics suggest that it could be some time before the various price controls are lifted," it noted.
 Looking ahead, data in the second half will be the key, and will confirm whether or not the post-flood recovery was largely technical, or still has legs. A recovery in Chinese, and indeed Asian demand, could pave the way for a more hawkish-sounding BOT, though if domestic inflationary pressures remain benign, rate hikes may not occur from the fourth quarter as we currently expect."