BOT unfazed by headline inflation figures: Prasarn
The Bank of Thailand is not concerned about headline inflation falling short of the target for this year, citing the increase in global oil supply as prompting oil prices to plummet.
"It may not be a very serious matter as inflation means changes and the change may be relatively considerable this round. But it doesn’t mean it will continue. It may be temporary and only once and make base corrections," Governor Prasarn Trairatvorakul said yesterday.
For the first time in five years, the global crude price had dived below US$50 per barrel.
The central bank forecasts average headline inflation at 1.2 per cent in 2015, assuming crude at $70 per barrel.
Thailand’s monetary-policy target was shifted by the Cabinet on Tuesday to headline inflation from core inflation. The target for this year was set at 2.5 per cent plus or minus 1.5 percentage point.
The central bank’s inflation projection comes close to the low end of the new target range and if global oil prices continued to drop, there remained a risk for headline inflation to miss the target.
However, Prasarn was unperturbed.
Some oil producers began to see the crude price at $50 per barrel as below their production costs.
The inflation target would influence the money market’s inflation expectations and if inflation misses the target, that could be explained to the public.
Drop in oil prices, which are dragging down inflation, have resulted from the growing excess supply of oil.
The policy rate, which normally deals with the demand side, could not be used in this situation.
"If it [headline inflation] goes down to touch the lower range or misses it, it should be acceptable. However, the MPC [Monetary Policy Committee] has to explain this to the public," he said.
It was difficult to forecast the crude price. Some producers, who have suffered higher costs, have started to cut back on pumping and that could lead to reduction in supply.
Expectations for a policy-rate cut may be based on economic factors, not headline inflation.
Thailand’s economic figures, particularly consumption and private investment, improved in October and November, he said. However, the December figures need to be followed, he added.
