Rating the odds of deflation

According to the Bank of Thailand, the corporate loan approval ratio slumped by 14.6% in the second quarter of this year, while the rate for small and medium-sized enterprises (SMEs) dropped by 41.6%.

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Loan demand for SMEs plunged by 34.1% for the period despite rising 8.4% for corporates overall.

Nuttaporn Triratanasirikul, deputy managing director of Kasikorn Research Center, said it is “too soon” to say Thailand faces a risk of sliding into deflation.

She agreed with Mr Poonyawat that headline inflation should pick up in the final quarter of the year as a supply squeeze pushes oil price to rise.

“Sectors with price declines are mainly apparel and consumer products, where there has been an influx of cheaper products from China,” Ms Nuttaporn told the Bangkok Post.

“The situation requires monitoring in case the risks grow going forward”

EIC forecast bank loans to contract again in 2025.

Credit remains tight as the nonperforming loan (NPL) ratio for banks’ loan portfolio remains elevated.

The central bank’s Monetary Policy Committee (MPC) noted credit growth remains negative due to increased credit risks, particularly for SMEs and low-income households, alongside higher debt repayments and reduced credit demand by large businesses amid elevated economic uncertainty, said Pipat Luengnaruemitcha, emerging Asia economist for BofA Securities.

Credit quality has continued to deteriorate, especially for SME and housing loans, he said.

ALLAYING CONCERNS

Sakkapop Panyanukul, secretary of the MPC, acknowledged the possibility of deflation, but stressed the risk remains low.

“Deflation can be defined in various ways,” he said. “If it refers to a broad-based decline in prices, the central bank has not observed any such signs.”

Following last Wednesday's meeting, the MPC said headline inflation is expected to stay subdued.

Raw food prices are falling thanks to favourable weather that increased supply, while energy prices are easing in line with global crude oil trends.

Still, price declines are not spread widely across goods and services.