BoT likely to stay pat through 2016, GDP growth to remain subdued

The Bank of Thailand (BoT) is expected to stay pat through 2016 and maintain its focus on the relative strength of the baht.  Also, growth in gross domestic product (GDP) is expected to remain subdued in the medium term, despite the partial offset from public spending.

Thailand’s headline and core inflation printed marginally below expectations in October. Indicators of private sector activity point to a sequential decline in Q3. Inflation rose 0.34 percent y/y in October. Headline prices remained subdued, averaging 0.05 percent y/y in the first 10 months of the year. Meanwhile, core inflation decreased to 0.74 percent versus 0.75 percent y/y in September.

"We see downside risks to our 2016 inflation forecast of 0.3% on the back of sluggish demand in the private sector," ANZ commented in its latest research report.

Further, demand-pull inflationary pressures will likely remain soft in the medium term. While average inflation in 2016 will likely remain well below the central bank’s 1-4 percent target range, headline inflation in 2017 is expected to rise back to the lower half of the target range.

Despite the support from public spending, the sluggish growth in private sector activity will likely cap overall GDP growth through to 2017. However, the BoT is expected to refrain from adjusting its policy settings this year and maintain its focus on the relative performance of the THB, the report added.