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2 Apr 2009

Thailand, Indonesia to cut rates as inflation eases

Thailand and Indonesia appear poised to cut interest rates in the coming week after a further drop in consumer price inflation, while in South Korea price pressures and currency weakness made the case less clear cut.

Annual inflation in Thailand fell in March to within the central bank's target range, Wednesday's data showed. That, coupled with the weakness seen in domestic consumption indicators this week, almost guaranteed that policy rates will be cut soon.

Indonesia's March inflation was 7.92 percent, the slowest pace of price rise in a year, and that also heightened market expectations the policy rate will be cut when Bank Indonesia policymakers meet this week.

Thailand seemed to be comfortably on course for another cut in its 1.5 percent repo rate next week, even though economists felt Tuesday's manufacturing data showed some tentative signs the economy had already bottomed.

Thai core inflation, measured by the rise in consumer prices from a year earlier, was 1.5 percent, at the top of the Bank of Thailand's forecast.

Industrial production data released on Tuesday painted an ambiguous picture, showing some parts of the manufacturing sector such as exports improving whole other details were grim. There was a 48 percent drop in vehicles production, a double-digit fall in private investment, and a 7 percent decline in consumption.

"Certainly, overall economic activity is probably still declining and at the same time inflation is just not an issue in Thailand," said Nicholas Bibby, an economist at Barclays Capital.

Bibby expects another one percentage point reduction in the Thai policy rate in this easing cycle.




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