Growth and Inflation Prospects and Monetary Policy

Growth and Inflation Prospects and Monetary Policy

1. Growth and Inflation Prospects and Monetary Policy The Thai economy is projected to grow in 2016 at the same rate as estimated in the previous Monetary Policy Report at 3.1 percent. Exports remain constrained by both weak economic growth among trading partners and structural changes in global trade. However, the adverse impact is offset by expansion in exports of services, thanks to the increase in the number of foreign tourists, and by private consumption that is supported by government spending and stimulus measures as well as improved income growth among agricultural households following rising agricultural commodity prices. For 2017, growth is slightly revised down from the previous estimate to 3.2 percent on account of a slowdown in merchandise exports, while domestic demand and tourism will continue to drive growth going forward. Headline and core inflation this year is expected to remain close to the previous assessment. Cost-push inflationary pressure is largely unchanged from the previous projection, as upward adjustments in domestic oil prices are offset by lower electricity prices. Demand-pull inflationary pressure is broadly unchanged, which is in line with the growth prospect that is mostly similar to the previous projection. For 2017, headline inflation is expected to pick up gradually in tandem with the gradual rise in global oil prices. Core inflation is also projected to pick up, albeit at a slightly slower pace compared with the previous assessment, in tandem with the economy that will grow at a slightly more moderate pace than expected. The Committee kept the policy interest rate unchanged at the May and June 2016 meetings. According to the Committee s assessment, the Thai economy continues to recover despite downside risks on both the domestic and external fronts. Inflation will return to the lower bound of the inflation target within the latter half of this year. Meanwhile, monetary conditions remain accommodative and conducive to the economic recovery, as reflected in the real interest rates and bond yields that remain at low levels. The Committee emphasizes the need to preserve policy space as cushion for future risks that have the potential to negatively affect the ongoing recovery. The Committee will continue to monitor risks to financial stability, particularly the search-for-yield behavior and underpricing of risks that may arise in the prolonged low interest rate environment. Monetary Policy Report June 2016 1

1.1 Growth and inflation prospects The Committee maintains the GDP growth forecast for 2016 at 3.1 percent (Table 1.1). Key growth drivers consist of (1) higher-than-expected exports of services that expand on the back of strong growth in the tourism sector and (2) continued government expenditure, underpinned by effective disbursement as well as additional stimulus measures, that helps bolster private-sector confidence and spending. The role of government expenditure is critically important especially when merchandise exports have yet to recover, given the sluggish growth in trading partners economies, especially in Asia, and changes in the global trade structure. Table 1.1 Forecast summary Percent 2015* 2016 2017 GDP growth 2.8 3.1 3.2 (3.1) (3.3) Headline inflation -0.9 0.6 2.2 (0.6) (2.2) Core inflation 1.1 0.8 1.0 (0.8) (1.1) Note: *Outturn () March 2016 MPR Sources: Office of National Economic and Social Development Board, Ministry of Commerce; calculations by Bank of Thailand Private consumption is projected to expand at a rate close to the previous assessment. Tourism receipts and incomes of agricultural households, the latter of which grow faster than expected due to rising agricultural commodity prices, help offset partly the decline in the incomes of households that involve with export-oriented manufacturing. Meanwhile, private investment is projected to improve relative to the previous forecast due mainly to the outlays for construction in connection with government projects. However, outlays for machinery and equipment are expected to remain at low levels consistent with weak merchandise exports. For 2017, domestic demand will continue to be the main growth driver, although its momentum is estimated to soften slightly from the previous projection. This is a result of (1) subdued merchandise exports held down in part by structural problems in global trade and (2) the waning of the stimulus effects of government measures on private-sector expenditure. The Monetary Policy Report June 2016 2

Committee thus revises down the growth projection next year to 3.2 percent, down from 3.3 percent (Table 1.1). This is consistent with the output gap that is projected to widen somewhat in 2017 compared to the previous estimate (Chart 1.1). Percent 4 2 0 Chart 1.1 Output gap MPR Mar 16 forecast MPR Jun 16 forecast Consistent with the growth projection -2 above, the forecast of core inflation for 2016 is kept unchanged at 0.8 percent, while the 2017 projection is revised down to 1.0 percent from 1.1 percent. In addition, this year s cost-push inflationary pressure is estimated to be mostly unchanged from the previous projection, since increase in domestic oil prices in tandem with an upward revision of global crude prices is offset by lower electricity prices. In sum, the Committee keeps unchanged the projection for headline inflation for 2016 at 0.6 percent, consistent with core inflation and cost-push inflation that are broadly unchanged this year, and maintains the headline inflation projection for 2017 at 2.2 percent, as the effect of the rising cost-push inflationary pressure is estimated to be offset by the declining demand-pull inflationary pressure. (Table 1.1). -4 2013 2014 2015 2016 2017 2018 The Committee has incorporated key economic developments into the growth and inflation forecasts as summarized below. (1) Trading partners economies are likely to grow at a slower pace than previously assessed (Table 1.2). The Committee revises down the projection of trading partners GDP growth for 2016, as Asian economies are expected to slow down further than previously anticipated. This is due to both the changes in the global trade structure that will negatively affect intra-regional trade and the slowerthan-expected recovery of advanced economies. Table 1.2 Growth assumptions for Thailand s trading partners Percent (%YoY) Weight (%) 2015 2016 2017 Mar 16 Jun 16 Mar 16 Jun 16 United States 14.9 2.4 2.2 1.9 2.4 2.3 Euro area 10.0 1.6 1.4 1.7 1.6 1.6 Japan 13.6 0.6 0.8 0.6 0.4 1.0 China 15.7 6.9 6.5 6.5 6.4 6.4 Asia (ex Japan and China)* 37.4 3.5 3.5 3.2 3.9 3.7 Total** 100 3.2 3.1 3.0 3.3 3.3 Note: * Weighted by each trading partner s share of Thailand s total exports in 2014, namely Singapore (6.5%), Hong Kong (7.9%), Malaysia (8%), Taiwan (2.5%), Indonesia (5.9%), Korea (2.8%), and the Phillippines (3.7%) ** Weighted by each trading partner s share of Thailand s total exports as of 2014 Monetary Policy Report June 2016 3

For 2017, trading partners GDP growth projection remains unchanged. While the US and Asian economies are expected to record weaker growth, it is anticipated that Japan will expand faster than previously projected, given that the increase in the sales tax, initially scheduled for 2017, has now been pushed back to 2019. Meanwhile, growth in the euro area and China is expected to slow down in line with the previous assessment. In addition to weaker growth of trading partners, changes in the global trade structure, whereby import dependencies have reduced in many economies, contribute to the continuous decline in both the global trade volume and Emerging Asia s export volume in particular (Chart 1.2). Such development is one of the key factors that leads to greater contraction in Thailand s merchandise export volume than previously anticipated. Consequently, Thailand s export value is estimated to decline despite an upward revision of export prices thanks to higherthan-expected commodity and crude oil prices. The Committee revised down the export value projection to a contraction of 2.5 percent in 2016, larger than the 2.0 percent decline according to the previous assessment. The export value for 2017 is projected to remain unchanged from the prior year s level, close to the 0.1 percent growth estimated previously. 110 105 100 95 Jan 2013 Chart 1 2 Global trade volume and Emerging Asia s export volume Index (3-month moving average, seasonally adjusted; January 2013 = 100) 120 Global trade volume EM Asia export volume 115 Jul 2013 Jan 2014 Jul 2014 Jan 2015 Jul 2015 Jan 2016 Source: Netherlands Bureau for Economics, calculation by Bank of Thailand Given the sluggish global economic recovery, monetary policy in major economies is likely to remain accommodative. The Federal Reserve has maintained an accommodative monetary policy stance for longer than the Committee previously expected. Most recently, the federal funds rate was kept on hold at the latest Federal Open Market Committee (FOMC) meeting in June, following the release of May employment Monetary Policy Report June 2016 4

figures that were below market expectations, and also in anticipation of the results of the United Kingdom (UK) European Union (EU) membership referendum that could spark volatility in global financial markets. The Committee expects that the FOMC is likely to wait for clearer signs of recovery in the US labor market before deciding on a rate hike in the latter half of this year and continuing with another rate hike next year. Meanwhile, the Bank of Japan has continued with monetary easing through quantitative and qualitative easing with the negative interest rate policy. Looking ahead, monetary policy divergence among major advanced economies will continue to be an important factor contributing to volatilities in capital flows and exchange rates going forward. The Committee expects that trading partners economies will be faced with greater downside risks. One of these risks is China s financial stability concerns which stem from elevated corporate debt that potentially results in financing difficulties for businesses and stateowned enterprises, thereby increasing default risks and costs of funds. Additional risks that warrant close monitoring are (1) uncertainties in monetary policy of major economies and (2) the UK s exit from the EU (Brexit). These risks could add to volatility in global financial markets and could have greater economic impacts than expected. (2) Crude oil prices in the global market, which were higher than previously expected in the second quarter of 2016, are projected to rise over the forecast horizon (Chart 1.3). The Committee revises up the projection for Dubai crude price throughout the forecast horizon. The oil price is expected to average at 43.1 US dollars per barrel in 2016, up from the previous estimate of 37.3 US dollars per barrel. This upward U.S. dollars per barrel 140 120 100 80 60 40 20 0 2014 Chart 1.3 Assumptions on Dubai oil price 2015 Mar 16 Jun 16 2016 2017 2018 Monetary Policy Report June 2016 5

revision is due to the more-than-expected increase in oil prices in the second quarter of this year as a result of supply-side factors. Oil production in many OPEC countries has slowed, putting upward pressure on prices both recently and going forward. In particular, lingering political tensions in Nigeria and financial problems in Venezuela are major factors behind the supply shortage. Meanwhile, production in non-opec countries remains low on account of US producers having withdrawn from exploration and drilling of shale oil. Looking ahead, the Committee thus expects that the global oil market will enter into new equilibrium more quickly, which will prompt US shale oil producers to resume production once prices exceed the break-even point, and that the increase in oil prices is expected to decelerate around the end of the forecast horizon. The more-than-expected increase in global oil prices will result in higher domestic retail oil prices compared with the previous projection. However, domestic energy prices as a whole are not expected to significantly increase due to the decline in electricity prices 1/ that will offset this year s higher oil prices. Prices of agricultural products have risen alongside crude oil prices, helping support farm income growth and sustain household consumption. Moreover, higher crude oil and other commodity prices lead to increasing export prices, helping 1/ The Energy Regulatory Commission (ERC) approved the decrease of the float time (Ft) surcharge in May through to August 2016 by 28.49 satang per unit. This resolution was based on the cost of natural gas used to fuel power generation that fell over the previous six months, together with the lower electricity purchase costs by the Electricity Generating Authority of Thailand (EGAT) as privately owned electric power plants were unable to deliver electrical currents in accordance with their contractual agreement with EGAT. Monetary Policy Report June 2016 6

cushion somewhat the effects of the decline in the merchandise export volume. Notwithstanding, overall farm income remains low, owing partly to the fact that higher prices still cannot fully offset the impact of the drought. This, together with elevated levels of household debt, will weigh on private consumption going forward. The Committee judges risks to crude oil prices to be balanced. Downside risks are as follow: (1) global oil demand may be lower than anticipated given a delayed global recovery; (2) shale oil producers may resume production sooner than the baseline projection as oil prices rises; and (3) supply of crude oil from OPEC producers may be larger than expected as they increase production to maintain their market share. On the other hand, upside risks come mainly from conflicts in the Middle East which potentially spread to major oil production locations. (3) The number of tourists has risen more than expected as a result of continued tourist growth in almost all nationality groups. Going forward, growth in the number of tourists is estimated to exceed the previous projection. Exports of services are expected to grow strongly on the back of increases in the number of tourists that is higher than previously assessed. Particularly, the number of Chinese tourists has increased significantly, while other nationalities have shown clearer signs of recovery. The number of Russian tourists, in particular, has turned around with positive growth after two consecutive years of contraction as the Russian economy has gradually recovered. Moreover, the expansion of low-cost airline routes, both of local and international airlines, has been a key supporting factor to the robust growth in Thailand s tourism sector. The Committee estimates the number of foreign tourists to rise to 34 million in Monetary Policy Report June 2016 7

2016, up from the previous assessment of 32.4 million, and 36.7 million in 2017, up from the previous projection of 34.4 million. Improved employment in the service sector thanks to tourism has partly offset income loss in the manufacturing sector following the export slowdown. The strength of the service sector thus contributes to an overall expansion in household income which has supported private consumption over the recent period. However, going forward, the service sector may not be able to absorb labor reallocation from other sectors, as labor demand in the service sector has started to soften. Moreover, elevated household debt has induced more cautious spending behavior. In this regard, private consumption is expected to recover at a slow pace. (4) The public sector continues to play a critical role in sustaining the economy through public expenditure, which is consistent with the previous assessment, as well as through additional stimulus measures. Overall, the public sector s disbursement for investment spending and financial commitments is continuously moving forward. The Committee thus revises up the projection for public consumption following the expedited disbursement of transfer payments to the National Health Security Fund in the first quarter of this year. Meanwhile, the Committee expects public investment in 2016 to remain close to the previous projection and to rise slightly in 2017 due to expedited carry-over expenditure in accordance with the Transfer of Expenses Budget Act, B.E. 2559. The outlook for investment of state-owned enterprises (SOEs) also remains largely unchanged despite some delay in the Prachuap Khiri Khan Chumphon dual-track rail project. Public expenditure has been well on-track, especially those related to government measures to Monetary Policy Report June 2016 8

improve living standards in provincial sub-districts. These measures involve transfers to sub-district agencies for the purpose of consumption and investment, which in effect directly induces privatesector spending. In addition, the public sector s outlays for construction have helped accommodate labor movement out of the agricultural sector over the recent period. This, in combination with the recovery in domestic demand, will in the short run aid private investment to grow faster than the previous assessment. Nonetheless, private investment is expected to moderate going forward due to the waning of effects from stimulus spending and due to more subdued external demand that potentially affect future earnings and investment plans. The Committee judges the balance of risks to public spending to be tilted to the upside. Upside risks include (1) some SOE investment projects including additional dual-track rails, high-speed rail projects, and new express-way routes that may commence next year, earlier than previously expected, and (2) higher-than-expected expenditure by local governments thanks to measures to expedite disbursement of the accumulated funds of local administrative organizations. Downside risks include (1) limited efficiency of spending disbursement by some government agencies, (2) rescission of funds already made available but not yet entered into financial commitments, and (3) political uncertainties which can pose a delay in public expenditure. Risks to Growth and Inflation Forecasts The Committee views risks to growth to remain tilted to the downside, as reflected in the growth fan chart that is skewed downward throughout the forecast horizon (Chart 1.4). Downside risks to growth are (1) weaker-thanexpected growth of trading partners, particularly China as a result of financial stability concerns, (2) Chart 1.4 GDP growth forecast Annual percentage change 15 15 10 10 5 5 0 0-5 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 Note: Fan chart covers 90 percent of probability distribution -5 Monetary Policy Report June 2016 9

households that are financially impaired and have less financial cushion for economic uncertainties than previously expected, and (3) political uncertainties that may affect public spending and tourism. Nevertheless, upside risks include (1) government investment that may be undertaken sooner and greater than expected, together with the effects of government stimulus that may turn out greater than the baseline projection, and (2) the number of tourists that may be greater than the baseline projection. With regard to inflation, the Committee judges the balance of risks to both headline and core inflation to be tilted to the downside in line with the balance of risks to growth (Chart 1.5 and 1.6). 6 4 2 0-2 Chart 1.5 Headline inflaltion forecast Headline inflation target (2.5 + 1.5) -4-4 2014 2015 2016 2017 2018 Note: Fan chart covers 90 percent of probability distribution 4 3 2 Chart 1.6 Core inflation forecast Annual percentage change 6 4 2 0-2 Annual percentage change 4 3 2 1.2 Monetary policy decision 1 0-1 1 0-1 Monetary policy remained accommodative in the second quarter of 2016 to support the ongoing economic recovery that continues to face downside risks on both domestic and external fronts. The Committee will continue to closely monitor financial stability risks arising from prolonged low interest rates and emphasizes the need to preserve policy space given remaining uncertainties over the economic outlook. -2 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 Note: Fan chart covers 90 percent of probability distribution -2 At the MPC meeting on May 11, 2016, the Committee voted unanimously to maintain the policy rate at 1.50 percent per annum. In deliberating this decision, the Committee assessed that the Thai economy continued to expand at a pace close to the assessment in the previous meeting. Headline inflation was expected to pick up gradually after turning positive in April, as the base effect of oil price dissipated over time, although demand-pull inflationary pressure still Monetary Policy Report June 2016 10

remained subdued overall. The balance of risks to economic growth was judged to be tilted more to the downside as the impact of the drought on agricultural households was likely to weigh on private consumption going forward. Meanwhile, monetary conditions eased further because of lower bond yields and the recent cuts in lending rates by commercial banks. Moreover, monetary conditions were judged to remain accommodative despite the fact that the Thai baht appreciated against some trading partners currencies at some points which might have not been as conducive to the economic recovery as it could have been. The Committee viewed that keeping the policy rate on hold at this meeting would help preserve policy space for risks that could have negative impact on the ongoing economic recovery. These risks included a possible delay in the global economic recovery, weaker consumption growth, and political uncertainties that might affect both private investment and consumption. Additionally, some committee members viewed the current economic slowdown to be attributed to structural problems, both domestically and globally, which could not be addressed by monetary policy alone. Moreover, cutting the policy rate at this juncture could potentially lead to further accumulation of imbalances in the financial sector, especially given that interest rates remained low for an extended period. The Committee would also continue to closely monitor risks to financial stability, particularly the search-for-yield behavior that could exacerbate underpricing of risks, and the possibility of a snapback of global bond yields, which could affect financing conditions, balance sheets of businesses, and the overall monetary conditions through adjustments in Thai government bond yields. Monetary Policy Report June 2016 11

In the following MPC meeting on June 22, 2016, the Committee voted unanimously to maintain the policy rate at 1.50 percent per annum. The Committee projected that the Thai economy would continue to recover and inflation would return to the target band in the latter half of the year in line with previous assessment. Meanwhile, monetary conditions remained accommodative and conducive to the ongoing recovery. Looking ahead, the Committee viewed that monetary policy should continue to be accommodative and would continue to closely monitor financial stability risks. In deliberating this decision, the Committee gave due consideration to Thailand s ongoing economic recovery. Going forward, the economy would be driven primarily by public expenditure and tourism. At the same time, private consumption would improve in line with previous assessment while private investment would continue to be at a low level. However, merchandise exports were projected to contract in tandem with slower-thanexpected growth of Asian economies. In light of these developments, the Committee assessed that the economic momentum from domestic demand and tourism would help offset the impact of weaker exports. As a result, the economic outlook would be largely unchanged and the economy would expand at the same pace as assessed in the previous meeting. Nevertheless, there remained several downside risks to growth, namely weaker-thanexpected growth in trading partners and fragility in private-sector sentiments. Incidentally, previous concerns pertaining to the impact of the drought subsided along with the recovery in prices of some agricultural commodities. The Committee also gave due consideration to the inflation outlook where headline inflation was projected to return to the lower bound of the inflation target within the latter half of 2016 Monetary Policy Report June 2016 12

as previously expected. Meanwhile, mediumterm inflation expectations remained wellanchored around the inflation target. Demandpull inflationary pressure increased somewhat due to the ongoing economic recovery, as reflected in core inflation that edged up slightly. Headline inflation was projected to pick up gradually as energy prices would rise in tandem with crude oil prices. Medium-term inflation expectations (5-10 years ahead) based on a survey of professional economists remained well-anchored around the inflation target of 2.5 percent. Monetary conditions were accommodative throughout recent periods and were conducive to the economic recovery and the return of headline inflation to the target. Accommodative monetary conditions were reflected in low real interest rates and the continued expansion of total corporate financing and lending to households, although certain businesses faced limitations in accessing credits. Going forward, the Committee still saw the need to continue monitoring financial stability risks, including the search-for-yield behavior, in the prolonged low interest rate environment. Finally, the Committee assessed the preservation of policy space to be critical, given that the economy would face various risks going forward. These risks included the fragile global economic recovery, monetary policy divergence, financial stability concerns in China, as well as Brexit. The Committee would stand ready to utilize an appropriate mix of available policy tools in order to make sure that monetary conditions and the exchange rate remain conducive to the economic recovery as well as to ensure financial stability. Monetary Policy Report June 2016 13

1.3 Appendix: Tables for supporting assumptions and forecasts Table 1.3 Forecast for GDP and assumptions Percent 2015* 2016 2017 GDP growth 2.8 3.1 3.2 Domestic demand 2.8 3.0 2.5 Private consumption 2.1 1.8 2.1 Private investment -2.0 3.1 2.3 Government consumption 2.2 3.5 2.8 Public investment 29.8 10.1 5.2 Exports of goods and services 0.2 2.2 0.9 Imports of goods and services -0.4-1.9 2.4 Current account (billion, US dollars) 32.0 37.8 32.3 Value of merchandise exports -5.6-2.5 0.0 Value of merchandise imports -11.3-6.0 5.3 Note: *Outturns Table 1.4 Forecast assumptions Annual percentage change 2015* 2016 2017 Dubai oil price (U.S. dollars per barrel) 50.8.1.0 Non-fuel commodity prices (%YoY) 1. -5.5 2.6 Fresh food prices (%YoY). 3.0 3.7 Minimum wage in the Bangkok Metropolitan Region (baht per day) 300 300 300 Government consumption (current price) (%YoY) 4.4 6.3 6.3 Public investment (current price) (%YoY) 1/ 25.6 10.4 8.4 Fed Funds rate (% at year-end) 0.38 0.63 1. 2/ Trading partners economic growth (% YoY) 3.2 3.0 3.3 Regional currencies vis-à-vis the U.S. dollar (Index) 3/ 150.7 154.4 157.2 Note: 1/ Including spending on water management plans and infrastructure investment projects 2/ Weighted by each trading partner s share in Thailand s total exports 3/ Appreciation against the US dollar indicated by the minus sign * Outturns Monetary Policy Report June 2016 14

Table 1.5 GDP growth forecasts by research houses 2016 2017 Maybank Kim Eng 4.0 5.0 PFO 1/ 3.3 - NESDB 2/ 3.3 - Thanachart Securities 3.3 4.2 Bank of Ayudhya 3.2 - BOT 3.1 3.2 Moody s 3.0 3.4 ANZ Bank 3.0 3.2 Kasikorn Research 3.0 3.2 HSBC 3.0 3.1 JPMorgan 3.0 TMB Bank 2.8 3.3 Siam Commercial Bank 2.8 3.3 Phatra Securities 2.8 3.2 Kiatnakin Bank 2.8 3.2 Nomura 2.7 2.7 Note: Compiled and published by Reuters on June 20, 2016, except: 1/ Published on April 28, 2016 2/ Published on May 16, 2016 with the release of GDP data for 2016 Presented in descending order of 2016 forecasts Table 1.6 Headline inflation forecasts by research houses 2016 2017 Maybank Kim Eng 2.0 2.5 Thanachart Securities 0.8 2.0 BOT 0.6 2.2 ANZ Bank 0.6 2.0 Kasikorn Research 0.6 1.7 Nomura Co Ltd 0.6 1.4 Bank Ayudhya 0.6 TMB Bank 0.5 2.5 Kiatnakin Bank 0.5 1.8 Phatra Securities 0.5 1.8 Siam Commercial Bank 0.4 2.3 TISCO Securities 0.4 2.2 JPMorgan 0.4 2.1 NESDB 1/ 0.4 - FPO 2/ 0.3 - KT ZMICO 0.0 1.5 Moody s -0.2 1.7 Note: Compiled and published by Reuters on June 20, 2016, except: 1/ Published on May 16, 2016 with the release of GDP data for 2016 2/ Published on April 28, 2016 Presented in descending order of 2016 forecasts Monetary Policy Report June 2016 15

Table 1.7 Probability distribution of GDP growth forecast Percent 2016 2017 Q2 Q3 Q4 Q2 Q3 Q4 Q4 2018 10-12 0 0 0 0 0 0 1 1 2 8-10 0 0 0 1 2 3 3 4 5 6-8 0 1 4 7 9 10 11 11 12 4-6 0 21 24 23 22 22 21 21 20 2-4 100 54 41 34 29 27 26 25 23 0-2 0 22 24 24 22 21 21 20 19 (-2)-0 0 2 6 9 11 11 11 12 12 < (-2) 0 0 1 2 4 5 6 7 7 Table 1.8 Probability distribution of headline inflation forecast Percent 2016 2017 Q2 Q3 Q4 Q2 Q3 Q4 2018 > 7 0 0 0 0 0 0 0 1 1 6-7 0 0 0 0 1 1 1 1 1 5-6 0 0 0 1 5 4 4 4 4 4-5 0 0 1 3 11 10 9 9 9 3-4 0 0 4 10 18 17 15 15 15 2-3 0 2 14 20 22 21 20 20 19 1-2 0 18 28 26 20 20 20 20 19 0-1 0 41 29 21 13 14 15 15 15 (-1)-(0) 100 30 17 12 7 8 9 9 9 (-2)-(-1) 0 8 6 5 3 3 4 5 5 (-3)-(-2) 0 1 1 1 1 1 1 2 2 (-4)-(-3) 0 0 0 0 0 0 0 1 1 < (-4) 0 0 0 0 0 0 0 0 0 Monetary Policy Report June 2016 16

Table 1.9 Probability distribution of core inflation forecast Percent 2016 2017 Q2 Q3 Q4 Q2 Q3 Q4 2018 > 4.5 0 0 0 0 0 0 0 0 1 4.0-4.5 0 0 0 0 0 0 0 0 0 3.5-4.0 0 0 0 0 0 0 0 0 0 3.0-3.5 0 0 0 0 0 0 1 1 1 2.5-3.0 0 0 0 0 1 2 2 3 4 2.0-2.5 0 0 1 2 5 6 7 9 10 1.5-2.0 0 2 6 9 13 14 15 16 16 1.0-1.5 0 23 22 23 22 22 21 21 20 0.5-1.0 100 47 35 29 25 23 22 20 19 0.0-0.5 0 24 25 22 19 18 17 15 14 (-1)-0.0 0 3 9 11 10 10 10 9 8 (-2)-(-1) 0 0 2 3 4 4 4 4 4 < -2 0 0 0 1 1 1 1 1 1 Monetary Policy Report June 2016 17