VIEW: HSBC Sees Inflation Rising Again Allowing BoT To Stay On Hold

June headline CPI inflation was lower than expected at 0.6% y/y down from 1.5%. Core was steady at 0.4% y/y. A drop was expected in headline due to base effects from energy prices but the non-seasonally adjusted monthly decrease of 0.3% was a surprise due to food and clothing. HSBC expects the Bank of Thailand to keep rates at 2.5% for now to pressure the household debt-to-GDP ratio down to 80% from 91%.

• HSBC notes that “The BoT's legroom to keep its policy rate steady became wider after two straight months of inflation surging. That legroom today got tighter with June CPI falling substantially month-on-month. The good news is that the disinflation was not broad-based; with core CPI only easing very slightly. That said, we don't think the CPI numbers indicate any large weakening in demand.” The risk on the downside though comes from imports from China.
• “Growth is expected to pick-up with government disbursements catching up after a 6-month delay in the budget. Inflation, too, should pick up and return to within the target band come 4Q 2024 when base effects dissipate. The successful passage of the Digital Wallet Scheme - due to its impact on both growth and inflation - will also build a case of a policy rate pause.”
• “Recovering from the El Niño season, food supply in the economy remains ample while competitive forces may have pulled clothing prices down.”