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Last week Tarisa had talks with Dr Surapong Suebwonglee. Both agreed that oil prices were moving downward, testing the US$110 per barrel level.

It might be necessary to accommodate economic growth, but Tarisa still held that the inflation risk remained, although it might not be necessary to tighten the monetary policy further. But the baht has already moved down to Bt34/US dollar territory, giving the impression that the baht is among the low yielders. However, commodity prices are also falling. This has helped ease inflation pressure.

Headline inflation should fall in the fourth quarter. The downshift of the broad food index or the raw food index would determine the pace of deceleration in headline inflation. Both Surapong and Tarisa should find their jobs easier with falling oil prices. But managing the economy during this uncertain time remains a big challenge.

Following Tarisa's comment that further tightening of monetary policy may not be necessary, Thai government bond yields continued to fall. Two-year yields are down to 3.95 per cent, less than 50 basis points above the policy rate, and as such there is not a lot of room for a continuation of the bond rally. Given at least one more 25-basis-point rate hike from the BOT, yields should stop falling. If the central bank indeed tightens monetary policy further by 25 points, current two-year yield levels would result in a spread of less than 25 basis points to the policy rate, hardly discounting any further rate hikes.

Now the financial markets expect that the central bank's policy rates will peak at 4 per cent. This would make Thai bonds overpriced.