Economic Analysis - Disinflationary Forces Likely To Reverse Course - MAY 2018

BMI View: We are sticking with our out of consensus call for the Bank of Thailand to hike interest rates by 25bps to 1.75% in 2018 as several disinflationary factors are likely to turn inflationary over the coming months. We are forecasting headline CPI to end the year at 1.8% from its temporarily depressed rate of 0.4% y-o-y in February.

Market consensus surveyed by Bloomberg as well as financial market indicators both lean in favour of the Bank of Thailand (BoT) remaining on hold for the rest of 2018. However, we are maintaining our view for the BoT to hike interest rates by 25bps from 1.50% to 1.75% by end-2018 as inflation starts to reverse course in the coming months. This is despite headline consumer price inflation (CPI) continuing to decline in February, coming in at just 0.4% y-o-y. In our view, the depressed inflation print reflects the lagged impact of a number of disinflationary trends seen over recent years - household sector debt deleveraging, low oil prices, and a strengthening Thai baht. However, we maintain that all three of these factors are set to shift from inflation headwinds to tailwinds.

Monetary Inflation To Resume

Money Supply Growth Starting To Pick Up
Thailand - Money Supply M2, % chg y-o-y
BMI, Bloomberg

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