Bloomberg News

Thailand Holds Rate as BOT Resists Government Call for Cut

May 02, 2012

Thailand’s central bank kept its key interest rate unchanged for a second straight meeting, resisting pressure from the government to resume easing as it guards against the risk of inflation amid rising wage and oil costs.

The Bank of Thailand held its benchmark one-day bond repurchase rate at 3 percent, it said in Bangkok today, a decision predicted by all 18 economists in a Bloomberg News survey. The monetary authority cut a combined 50 basis points in November and January.

Finance Minister Kittiratt Na-Ranong in March urged the central bank to reduce borrowing costs to help businesses recover from last year’s floods, even as the International Monetary Fund said last month Asian nations should prepare to tighten policy as price pressures rise. Premium benzene, an additive of gasoline, has gained 23 percent in Thailand this year, and wages have climbed in Bangkok and six other provinces.

“The central bank may want to take a wait-and-see attitude for a while” said Yuji Kameoka, chief currency strategist at Daiwa Securities Co. in Tokyo. “Inflation risks remain, while economic growth is not really accelerating.”

The Thai baht fell 0.4 percent to 30.84 per dollar as of 3:39 p.m. in Bangkok. It has gained more than 2 percent this year. The benchmark SET index climbed 0.8 percent.

Deemed Appropriate

Kittiratt on March 23 said he’d like to see the policy rate fall by “at least” 50 basis points after the Bank of Thailand joined central banks from Australia to South Korea in keeping borrowing costs unchanged.

“External factors continue to be a major risk to growth while inflation remains manageable,” Bank of Thailand Assistant Governor Paiboon Kittisrikangwan said in a statement today. The current level of the policy rate is “deemed to be appropriate in supporting a smooth recovery of economic activity to normal levels while keeping inflation within target,” he said.

Inflation slowed in April to the lowest in more than two years, and the commerce ministry has maintained its forecast for this year at between 3.3 percent and 3.8 percent.

Prime Minister Yingluck Shinawatra has said she is worried about an increase in the cost of living. Rising oil prices are uncontrollable, she said, “but we will try to minimize impacts.”

Factories have struggled to resume full production since last year’s floods and exports fell for the fourth time in five months in March, while industrial output also contracted.

Willing to Spend

Thai consumer confidence rose for a fifth straight month in April, the University of the Thai Chamber of Commerce said today, helped by higher wages. Pay in Bangkok and six other provinces rose to 300 baht ($9.7) a day from April, and climbed an average of 40 percent in the rest of the country.

“Consumers are more willing to spend money as economic conditions improve after the floods,” Thanavath Phonvichai, an economist at the university, said earlier today. Still, the index hasn’t returned to the pre-flood level, and people are concerned about the rising cost of living, he said.

Inflation risks remain because of higher wages and oil costs and a faster-than-expected economic recovery, Paiboon said today at a briefing. The central bank will monitor price gains closely, he said, adding that “there is no sign that the low rates will undermine economic stability.”

The recovery in the first three months was faster than expected, with manufacturing now expected to improve late in the second quarter, rather than in the third quarter as earlier forecast, Paiboon said. Exports will also pick up quicker.

Ready to Adjust

“We have kept interest rates at a low level to support the economic recovery,” Paiboon said. “We are ready to adjust monetary policy if necessary in line with the changing situation,” he said.

The one-year onshore interest-rate swap, the fixed cost needed to receive a floating payment, has climbed 19 basis points this year to 3.02 percent, reflecting more bets on a rate increase over the next 12 months. The benchmark three-year yield has jumped 32 basis points during the period to 3.4 percent, according to data compiled by Bloomberg.

“The central bank’s loosening cycle is over, given the economy is growing again and inflation risks are tilted to the upside,” Matthew Circosta, an economist at Moody’s Analytics in Sydney, said before the decision. Reconstruction spending and higher wages may raise price pressure, he said, adding that he expects two rate increases in the second half of the year.

The central bank will raise its economic forecast for the year, Paiboon said today. The new forecast is scheduled to be announced in its quarterly report due May 11.

Thailand’s economy, the biggest in Southeast Asia after Indonesia, contracted 9 percent last quarter from a year earlier, the steepest decline since 1998. It expanded 0.1 percent in 2011.

The Bank of Thailand in March raised its growth forecast to 5.7 percent. The Finance Ministry last week said the economy will grow more than 2 percent in the first quarter, and maintained its estimate for this year at 5.5 percent.

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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