MNI ANALYSIS: Thailand Infla Pressures To Rise On Energy Costs

--Higher Inflation And Fed Tightening To Shift BOT To Hawkish Stance

By Stuart Allsopp

     SINGAPORE (MNI) - Inflation pressures are rising in Thailand and are likely

to continue doing so, putting pressure on the Bank of Thailand to shift to a

more hawkish stance. While the bank's wide inflation target band will give

policymakers significant leeway to maintain low interest rates, the balance of

risks is shifting rapidly towards tighter rather than loose monetary policy.

     The rise in Thailand's headline inflation rate in April, which came in at

1.07% y/y, up from 0.79% in March, marks the fastest increase in over a year and

likely hints at further increases to come. While core CPI rose by a more modest

0.64%, the figure was still the highest in over a year.

     --RATE HOLD LIKELY, UPSIDE RISKS 

     Analysts are unanimous in their expectations for the BOT to maintain its

benchmark interest rate at 1.50% throughout the course of 2018, inflation

remaining at the lower end of the bank's 1.0-4.0% target range. However, upside

risks are growing as the two major disinflationary forces at play over recent

years -- low oil prices and weak credit growth -- are coming to an end. As we

have seen in the past, inflation rates in Thailand can rise rapidly when oil

prices rise.

     --FUEL THIRSTY

     Thailand is one of the most fuel thirsty countries in the region, with

energy comprising 13.1% of total imports and just 2.7% of total exports, meaning

that net energy imports are around 8% of GDP, considerably higher than other

major net energy importers such as India, Japan and Korea. April's rise in

headline inflation was mainly driven by higher energy prices, which rose 4.7%

y/y from 3.8% y/y in March.

     As the y/y increase in global crude oil prices continues to accelerate into

the middle of the year, so too will its impact on headline CPI, and if history

is any guide we should expect core CPI to follow suit. The combination of

rapidly rising oil import prices and the ongoing monetary tightening cycle by

the U.S. Federal Reserve should put downside pressure on the Thai baht and force

the BOT to adopt a less dovish stance. The BOT will next meet on May 16 with a

hold as good as guaranteed, although MNI would not be surprised to see

policymakers adopt a less dovish tone.

--MNI Singapore Bureau; +65 8233 2326; email: Asia-Editor@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

[TOPICS: M$A$$$,MI$$$$]