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August 1, 2007

July inflation eases, rate cuts possible
Thailand's consumer price index rose a below forecast 1.7% in July, putting annual inflation at a three and a half year low and supporting expectations of further interest rates cuts this year, Reuters reported.

Analysts polled by Reuters had expected an annual rise of 2.1% in July from 1.9% in both May and June. As long as inflation is within the central bank's 2007 forecast range of 1.5% to 2.5%, some analysts say, there is room for further rate cuts this year.

"This would still allow the central bank to keep interest rates at a low level to boost a sluggish economy," economist Charl Kengchon of Kasikorn Research Center said. The central bank has cut its policy rate this year by 175 basis points to 3.25% to revive an economy depressed by weak consumer confidence in the wake of Thailand's military coup last September.

The market is expecting additional cuts of 25 to 50 basis points by the end of the year, but there are signs the central bank may not be in a hurry to do so. "Current rates are at very low levels. The net real interest rates, after inflation, are already almost negative," BoT Governor Tarisa Watanagase told a group of exporters on August 1.

The baht's sustained appreciation in July, together with easing oil and local vegetable prices, helped curb inflation last month, the Commerce Ministry said in a statement. Core CPI, which excludes energy and fresh food prices, rose 0.8% in July from a year earlier, below the 0.9% forecast by analysts. That compared with 0.7% in June, the lowest in two years. Reuters


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