Thailand's inflation to hit 3.5% in February

Will the government cut its policy rate this year?

According to DBS, inflation is likely to be more of a concern as this year progresses. For February, inflation of 3.5% YoY has been penciled into DBS' forecasts.

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The economy has been performing very well as reflected by the GDP numbers and the loan growth numbers (especially consumer loans).

In the short term, headline inflation has also been bumped up by the adjustment in electricity prices last year. Going forward, price pressures are likely to materialize especially if the domestic economic momentum is sustained.

Notably, the output gap has been positive over the last three quarters, pushed to the highest level since early 2008, before the GFC. Signs of demand-pull inflation will start to appear.

Externally, oil prices have been rising over the past several months and the pass-through to CPI is likely to felt. For February, inflation of 3.5% YoY has been penciled into our forecasts.

With credit growth and GDP growth still robust, we do not think that the central bank (BoT) will further cut the policy rate this year.