* Thai inflation within central bank's target, rate cut seen
* South Korea inflation sticky, weak won complicates policy
* Indonesia March inflation lowest in a year
By Vidya Ranganathan
SINGAPORE, April 1 (Reuters) - Thailand and Indonesia appear poised to cut interest rates in the coming week after a further drop in consumer price inflation, while in South Korea price pressures and currency weakness made the case less clear cut.
Annual inflation in Thailand fell in March to within the central bank's target range, Wednesday's data showed. That, coupled with the weakness seen in domestic consumption indicators this week, almost guaranteed that policy rates will be cut soon.
Indonesia's March inflation was 7.92 percent, the slowest pace of price rise in a year, and that also heightened market expectations the policy rate will be cut when Bank Indonesia policymakers meet this week.
Circumstances in South Korea were different. Inflation fell to an annual pace of 3.9 percent, but remained above the top of the central bank's target at 3.5 percent. The fragility in the economy and the won notwithstanding, analysts were no longer convinced Bank of Korea would cut rates next week.
"Inflation in Korea is going to remain sticky downwards," said ING economist Tim Condon. "So my confidence in my forecast of a 25 basis points cut next week has evaporated."
Condon reckons there is only a 50 percent chance the Korean central bank will shift policy when it meets next Thursday.
While inflation has fallen consistently across Asia in the past year and allowed central banks to ease monetary policy aggressively, one factor that has set them apart is the performance of their currencies.
Countries with excessively weak currencies such as the won and rupiah, which have fallen 28 percent and 20 percent respectively against the dollar in the past year, have had to deal with higher import costs, inflation and capital flight in spite of the support this gave their declining export earnings.
KOREA DILEMMA
Bank of Korea's dilemma stems from its own decision in March to keep rates steady after cutting a successive six times, a move that spooked the bond market, flattened the interest rate curve and drove short-term yields up.
At 188 basis points, the spread between Korean benchmark 3-year bond yields and the 2 percent policy rate is among the highest in emerging Asia.
Wednesday's data was evidence inflationary pressures remained a factor that inflation-targeting Korean policy makers ought to consider, almost precluding them from resuming their monetary easing in April.
HSBC economist Frederic Neumann, said price pressures remained elevated in Korea regardless of the drop in the headline reading.
"Despite sharply decelerating demand, both domestic and external, the sell-off of the won has had some impact on inflation.
"For next week, we expect the Bank of Korea to remain on hold for now, although once price pressure ease again in the third quarter, rate cuts may come back on the table," he said.
THAILAND TO CUT
Thailand meanwhile seemed to be comfortably on course for another cut in its 1.5 percent repo rate next week, even though economists felt Tuesday's manufacturing data showed some tentative signs the economy had already bottomed.
Thai inflation, measured by the rise in consumer prices from a year earlier, was 1.5 percent, at the top of the Bank of Thailand's target.
Industrial production data released on Tuesday painted an ambiguous picture, showing some parts of the manufacturing sector such as exports improving whole other details were grim. There was a 48 percent drop in vehicles production, a double-digit fall in private investment, and a 7 percent decline in consumption.
"Certainly, overall economic activity is probably still declining and at the same time inflation is just not an issue in Thailand," said Nicholas Bibby, an economist at Barclays Capital.
Bibby expects another one percentage point reduction in the Thai policy rate in this easing cycle. (Editing by Jan Dahinten)