Here's the grim impact of 'Bangkok shutdown' on Thailand economy

Things could get tricky for the central bank.

According to DBS, as the “Bangkok shutdown” continues, it is increasingly likely that the February 2 election will be postponed.

Several local media reported that there are now plans to postpone the polls to May. It remains uncertain what authority the caretaker government has regarding the 2014 budget. What seems clear though is the fact that there will be further delays to the THB 2tn infrastructure bill.

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This does not bode well for the economy. While export growth has shown early signs of bottoming out, domestic demand remains soft. Capacity utilization has slipped again after the slight recovery in September while private investment index is currently at its lowest since 1Q12. The infrastructure bill was eagerly awaited as a catalyst to spur private investment.

Against this backdrop, there is a risk that the central bank may feel the need to do more to help propping up the economy. A still benign inflation will continue to make it tempting to call for lower interest rates. This is where things get very tricky for the BOT.

Inflation is set to pick up in 2Q and, more importantly, excessive household leverage remains an underlying threat even if the BOT seems to have shrugged this off in the last policy meeting. Just like anyone else, the BOT will continue to watch developments on the political front very closely. It will be hardly surprising if the central bank were to remain somewhat bearish during its policy meeting next week.