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Headline inflation will be close to zero this year, says BOT chief

Feb 13. 2015
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By ERICH PARPART
THE NATION

THE BANK of Thailand believes that headline inflation will be close to zero this year and around 2.5 per cent in 2016 while core inflation is expected to be around 1 per cent, giving the central bank confidence that there will be no deflation as domestic

Headline inflation was recorded at minus 0.41 per cent last month and core inflation at 1.64 per cent in the same period while the BOT was targeting headline inflation of between 1-4 per cent.

 “Our prediction still sees average core inflation at around 1 per cent for this year while headline inflation will be slightly lower than 1 per cent and will be closer to zero but not in the negative zone, as we expect the rate to be positive in the second half of the year,” BOT Governor Prasarn Trairatvorakul said.

He explained that headline inflation would be in the region of 2.5 per cent next year because of the eventual increase in oil prices, which was expected to be around US$60-$70 barrel (Bt1,950-2,280) by the end of this year.

The central bank governor insisted that the country’s gross domestic product would expand by 4 per cent in 2015 as a result of recovering domestic consumption, investment and tourism.

He said the economy should expand by 4 per cent in the first half of the year because of the slight expansion last year while the economic expansion in the second half should be around 3 per cent, which meant average growth of around 4 per cent for the year.

In a separate interview, former finance minister Thanong Bidaya said the BOT should lower the policy interest rate to ease the problem of the baht strengthening against the US dollar compared to other currencies in the region.

He explained that Thailand’s decision to keep the policy interest rate at a level higher than developed countries meant exposing the country to more fund-flow risk in the constant search for better returns.

Her said this development was affecting the baht’s exchange rate and the baht would continue to strengthen and hamper profits in the export sector.

“The Bank of Thailand is more concerned with inflation and they are afraid that they will lose control if the rate shoots up to more than 4 per cent, which is similar to the situation during the World War,” he said.

“The central bank’s decision to focus on stability over growth is not wrong but other countries do not only look at their inflation but they also look at the exchange rate and funds flows as part of their decision-making,” he added.

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