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Thailand Heading Deeper Into Deflation

Thailand’s economy is strengthening on the back of a recovery in exports.Thailand’s economy is strengthening on the back of a recovery in exports.

Thailand’s central bank held its benchmark interest rate near a record low, seeking to preserve policy room despite signs that the economy is heading deeper into deflation again.

The one-day bond repurchase rate was left at 1.5%, with monetary policy committee members voting unanimously in favor, the Bank of Thailand said in Bangkok on Wednesday. All 21 economists surveyed by Bloomberg predicted the decision.

Policy makers are struggling to get inflation into the 1% to 4% target range. After about a year of low but positive inflation, consumer prices declined for a second month in June, prompting the central bank to lower its forecasts for this year and next.

Even so, officials have been reluctant to cut interest rates despite a stronger currency and amid worries over consumer debt levels. Policy makers were more optimistic on the economy as they raised growth estimates.

“If the very weak inflation persists, we shouldn’t rule out that the Bank of Thailand may come in to cut rates,” said Gundy Cahyadi, an economist at DBS Holdings Ltd. in Singapore. “It will take some time before inflation reaches the comfort zone of the central bank, as we are unlikely to see any significant surge barring shocks.”

Thailand’s economy is strengthening on the back of a recovery in exports, but growth will probably remain below a long-term trend of 4.5%, according to the World Bank. The military government, which seized power three years ago, is predicting expansion of more than 4% in 2018, which would be the highest in six years, while the World Bank sees growth of less than 3.5% until 2019.

 

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