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Analysts expect inflation in Asia to slow further this year, with some countries likely to see deflation, as domestic consumption and oil prices ease, and as demand remains low in much of the developed world (the main export markets for Asian companies), pushing down prices.
Inflation in Thailand, Indonesia and Taiwan fell more than expected in December, causing observers to predict another round of interest rate cuts as governments in the region try to prop up struggling economies. Inflation tumbled in Thailand to a six-year low of 0.4% and fell in Indonesia to a six-month low of 11%. In Taiwan, it hit 1.2%, the lowest level in more than a year. “We will see aggressive rate cuts by the Bank of Thailand this year,” said Usara Wilaipich, an economist at Standard Chartered Bank. “We also will see more downside risk to inflation and probably a negative inflation rate in March to June, or temporary deflation, which should allow the Bank of Thailand to make a bigger rate cut.”
Both Thai and Indonesian central banks lowered their benchmark rates in December for the first time since September. Thailand cut its main interest rate by a full point, to 2.75%, and Indonesia lowered its rate by 0.25 to 9.25%. Many investors expect an imminent rate cut in Indonesia, the largest economy in southeast Asia, which has been experiencing higher inflation than most of its neighbors. But officials expect that to slow sharply this year. “Inflation can ease to a single digit in March,” said Rusman Heriawan, the head of Indonesia’s statistics agency, adding that there was scope for additional cuts in subsidized fuel prices.