Bloomberg News

Thai Finance Ministry Raises Growth Forecast, Sees Rate Rise

March 26, 2012

Thailand’s Finance Ministry raised its 2012 growth forecast and predicted interest rates will rise, less than a week after Deputy Prime Minister Kittiratt Na-Ranong urged the central bank to ease monetary policy.

Gross domestic product is estimated to grow between 5 percent and 6 percent, with a midpoint forecast of 5.5 percent, Somchai Sujjapongse, head of the fiscal policy office, told a news conference in Bangkok today. The ministry predicted earlier the economy would grow about 5 percent this year.

“We think the central bank may raise the key rate late this year because we believe that inflation will accelerate in the second half when economic growth picks up speed,” Boonchai Charassangsomboon, deputy spokesman of the fiscal policy office, said by telephone after the briefing. “I don’t know the reason behind the minister’s comment, but we based our assumption on the forward-looking perspective and the current data.”

The Bank of Thailand kept its benchmark rate at 3 percent last week after cutting it twice in recent months to support an economy hurt by the worst floods in almost 70 years. Manufacturing improved in February, Somchai said today, a sign exports are set to recover from the disaster last year that disrupted global supply chains and killed more than 700 people.

‘Another Story’

“The minister may want the rate to be lower to help the economy, but what the real rate decision will be is another story,” said Thanomsri Fongarunrung, an economist at Phatra Securities Pcl (PTSEC) in Bangkok. “We believe the central bank will hold the rate for quite some time. There is a chance that the rate will be raised later this year, but that depends on the strength of the economic recovery and also how much the oil price will rise.”

The ministry predicts the central bank may raise its policy interest rate to 3.25 percent later this year, Somchai said. The latest GDP forecast is based on assumptions that Dubai crude oil prices will average $118 per barrel and the baht 31 per dollar, Somchai said.

In contrast, Kittiratt, who is also Thailand’s finance minister, said March 22 he’d like to see the benchmark one-day bond repurchase rate fall by “at least” 50 basis points from its current level. He also said the baht should weaken to a range of 32 to 34 a dollar to help exporters. The currency traded at 30.78 today.

Thailand’s economy, the biggest in Southeast Asia after Indonesia, contracted 9 percent last quarter from a year earlier, the steepest decline since 1998, and expanded 0.1 percent in 2011. Exports shrank 6 percent in January, as factories struggled to resume production and global demand weakened.

Imports Rising

Imports are expected to rise 23.3 percent this year on investment, with exports growing 13.5 percent, Somchai said. The ministry forecasts a trade surplus of $7.3 billion in 2012, while the current account may post a $3.5 billion deficit, he said.

The manufacturing index improved in February from January, Somchai said, without disclosing figures. Thailand’s Commerce Ministry will release official trade data tomorrow and manufacturing data will be released on March 28.

“The economic indicators in February continue to show a clear recovery from the flood crisis,” Somchai said. “GDP will be positive in the first quarter and will rise steadily to reach the highest growth in the fourth quarter because of the low base last year.”

To contact the reporter on this story: Suttinee Yuvejwattana in Bangkok at suttinee1@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net


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