● In March, Thailand recorded its first deflation in four years (-0.5% YoY; consensus: -0.6%; Feb: 0.7%)

- MoM: fell at the steepest pace since the 2008-09 Global Financial Crisis (-0.9%; Feb: -0.1%).

- Core inflation: softened marginally (0.5%; Feb: 0.6%).

● Decline in price levels largely led by prices of non-core goods (-3.4%; Feb: 1.1%)

- Transport & communication (-4.9%; Feb: -0.5%): deepest drop in 51 months due to a plunge in global oil price triggered by the price war between Russia and Saudi Arabia.

- Food & non-alcoholic beverages (1.6%; Feb: 2.0%): eased to a four-month low mirroring supressed demand as daily activities were hindered since the announcement of a state of emergency in March.

● Subdued inflationary pressure in most advanced and developing economies

- EA (0.7%; Feb: 1.2%): lowest in five months due to decline in energy prices.

- KR (1.0%; Feb: 1.1%): decreased for two straight months attributable to soft consumer purchases amid stringent movement restrictions.

● 2020 CPI forecast revised sharply down to -1.0 - 0.0% from 0.6-0.8% (BoT 2020F: -1.0%; 2019: 0.7%)

- The emergency declaration, which is scheduled to end on 30 April but could be extended by a month or two if situation worsens, will inflict pressure on prices as business and consumer activities will be limited and weighed by fear of instable future income. Additionally, oil price could endure further downturn should the OPEC+ fails to reach an agreement on production cuts at an emergency meeting tomorrow.

- The BoT’s decision with regards to policy rate will ultimately hinge on the development of COVID-19 spread in the next few weeks. With recent slash in the banks contribution rate to a bailout fund (Financial Institutions Development Fund (FIDF)) from 0.46% to 0.23% of deposits annually, and given indication by the BoT’s Governor back in December 2019 that the FIDF contribution rate could be seen as an effective lower bound for the policy rate, we view that the BoT may embark on a 25 basis points rate cut, bringing the policy rate to 0.50%, at an emergency meeting or the next policy meeting in May.

Source: Kenanga Research - 8 Apr 2020