Bangkok--8 Apr--HSBC
Facts
In seasonally adjusted terms, Thailand recorded 0.1% m-o-m inflation in March - lower than our forecast and the 0.4% m-om recorded last month. Continuous decline in rice prices and the strengthening Thai baht allowed the inflationary pressures to remain muted in March.
In year-on-year terms, headline inflation edged down to 3.4% from 3.7% of last month, led by the heavily weighted food component, whose prices registered a milder 4.4% y-o-y increase in March versus 5.1% y-o-y the month before. On a sequential basis, raw food prices declined by 1.4% m-o-m while energy prices went on the upswing, increasing by 1.7%
m-om.
Core inflation, which excludes the volatile food and fuel components, remained mild at 0.4% y-o-y in March, compared to 0.3% y-o-y in the prior month.
Implications
The relative pick-up in crude oil price may be exerting some pressures on price, but this is counter-balanced by the fact that the output gap in the country remains negative. This presence of extra production capacity in the system, together with a strong currency, will be able to contain inflation pressures. In turn, the relatively low prices would continue to provide a booster shot to our domestic demand-led growth scenario for 2010.
Given the tame inflation print, we expect the policy rate to stay on hold, when the Monetary Policy Committee meets on April 21st. No doubt the Committee will be cognizant of the ongoing political tensions and the spill-over effects on economic growth. Today's inflation data gives them the space to remain watchful. In particular, the core prices remain under the target
range of 0.5-3.0%.
However, the central bank looks unlikely to keep its rates unchanged thereafter. Aware that the 1.25% policy rate in Thailand ranks as among the lowest the region, the BoT will increase its policy rate by 25bps in the June meeting, we believe.
Bottom line
The Bank of Thailand said last week it will start to "normalize" the policy rate after leaving it unchanged for almost a year to support a recovery. We believe the rate hike will come in June, not in the upcoming April meeting. The first 25 bps hike in three months' time is not so much about the pick-up in core inflation. It will be more of a signal that the economy is recovering
strongly and warranting less support with time.
Media enquiries to Varanandha Sutthapreeda on 0-2614-4609 or Savittree Muadmuang
on 0-2614-4606.
Notes to editors:
1. HSBC in Thailand
HSBC was established as the first commercial bank in Thailand in 1888. With access to global expertise and enriched local knowledge, HSBC in Thailand provides a full range of financial services including global, commercial and institutional banking, global markets, securities services, trade and supply chain, payment and cash management services to corporate customers; personal financial services and credit cards to a growing retail customer base in Thailand. HSBC is globally recognised for its high service standards, ethical practices and full commitment to corporate sustainability to benefit the local economy.
2. HSBC Holdings plc
HSBC Holdings plc, the parent company of the HSBC Group, is headquartered in London. The Group serves customers worldwide from around 8,000 offices in 88 countries and territories in Europe, the Asia-Pacific region, the Americas, the Middle East and Africa. With assets of US$2,364 billion at 31 December 2009, HSBC is one of the world’s largest banking and financial services organisations. HSBC is marketed worldwide as ‘the world’s local bank’.