Thailand and Korea inflation slumps

By Apornrath Phoonphongphiphat and Wayne Cole

BANGKOK/SYDNEY (Reuters) - Inflation in Thailand, South Korea and Australia plunged in November in synch with a global retreat, giving central banks room to slash interest rates to soften the blow from the worst financial crisis in decades.

Thailand's annual inflation tumbled to a 14-month low, paving the way for a rate cut later this week, which would make the Southeast Asian nation the latest addition to the worldwide campaign to avert a deep global recession.

South Korea saw its inflation hitting a seven-month low, keeping the central bank firmly in easing mode and in Australia, a sharp drop in a key inflation gauge boosted bets on another steep rate cut to help the cooling economy.

Japan, where borrowing costs are already close to zero limiting its wiggle room on rates, is bracing for another spell of a devastating combination of falling demand and prices.

Thailand saw its inflation tumbling even more than expected to just 2.2 percent from 3.9 percent in October and a decade high above 9 percent scaled in July. Its central bank had raised rates as recently as August.

"The Bank of Thailand will probably have to cut interest rates this time even more than it expected," said Charl Kengchon, economist at Kasikorn Research Centre.

Markets fully priced in a quarter point rate cut on Wednesday, with a large chance for a bigger cut and more easing ahead, given government warnings the economy, hit by the global downturn and political unrest at home, may stagnate next year.

Only Indonesia, grappling with capital outflows and a weakening currency, bucked the inflation trend in Asia with an 11.68 percent rise in its consumer price index in November compared with an 11.77 percent rise in October -- too high to trigger an interest rate cut.