Thai cenbank likely to shift to headline inflation target next year

[BANGKOK] Thailand's central bank is likely to adopt headline inflation as a guiding target of its monetary policy next year as part of its attempt to ensure better communication with the public on inflation expectations.

Finance Minister Sommai Phasee has agreed with the bank's proposal to switch next year to targeting headline inflation of 3.0 per cent plus/minus 1.5 percentage points from a core inflation target range of 0.5 -3.0 per cent now used to guide the policy. "I told the (central bank) governor that I agreed with the shift to headline inflation. We discussed this in a meeting soon after I took the minister post," Sommai told reporters late on Tuesday after a seminar in Bangkok.

Bank of Thailand Governor Prasarn Trairatvorakul has said Thailand was the only country using core inflation target while all major central banks had used headline inflation targeting.

Sommai said he would propose the change to the cabinet for final approval, though the date of cabinet submission has not yet been set. The inflation target is reviewed each year.

The cabinet usually meets on Tuesdays.

The headline inflation targeting seems to be supportive to the military government's pro-growth bias and hence favouring policy easing by the Bank of Thailand, Singapore-based Nomura economists wrote in a report. "We think this change would be seen as a shift to a dovish stance - it is a very different picture if the BOT were to keep the existing core inflation target, because core inflation at 1.7 per cent is near to the centre of that target," they said. "In our view, this adds to the probability of the BOT cutting rates again sooner rather than later - a risk we have started to flag following the more dovish tone at the last MPC meeting," they said.

Last week, the central bank held its policy rate steady at 2 per cent but left the door open to a possible cut as the economy is growing more slowly than it forecast earlier.

In the minutes from its meeting on Sept 17, the MPC said the proposed switch to targeting headline inflation "could be easily understood by the public and would better reflect the cost of living." Inflation has been benign, curbed by government price controls and subsidies and weak domestic demand, which was hurt by prolonged political unrest that led to a military coup in May.

Core inflation rate - which strips out fresh food and energy prices - stood at 1.7 per cent in October while headline inflation was at 1.5 per cent due to declining oil prices.

REUTERS