Thailand's CPI inflation eases to 1.75% YoY in September

It's the lowest level to date.

Thailand's CPI inflation eased further to 1.75% (YoY) in September, its lowest level in the year-to-date.

According to a research note from DBS, it is also well below the 2.5-3.5% comfort range that Bank of Thailand (BOT) has factored in for the medium-term.

Given downside risks to GDP growth outlook, it is very likely that there will be growing calls for the BOT to ease its monetary policy further.

It is unlikely that the central bank will budge, though, the report noted.

Here's more from DBS:

Falling CPI inflation has been driven mostly by the government’s administrative measures. The eventual unwinding of those measures only mean that there is plenty of upside risk on CPI inflation going forward.

Indeed, while CPI inflation has fallen, core inflation has been steady circa 1.7% in the past 5 months. Granted, it is still lower than the 2-2.5% range that is typically associated with normal conditions.

Nevertheless, it still falls within the central bank’s medium-term comfort zone for now. Stronger GDP growth may require more time than initially thought.

But the BOT seems patient enough for now. The central bank keeps its GDP growth forecast at 1.5% for 2014, even after the government announced an extra USD 11bn budget for the remainder of the year.

In any case, monetary policy is still very much accommodative at this juncture. The problem with the economy is the lack of demand on both domestic and external fronts. Further rate cuts are unlikely to be effective, especially given prevailing risks from high household debts.