Wednesday, July 14, 2010

Thailand ups interest rates by 25bps to 1.5%

BANGKOK: Thailand's central bank raised interest rates by 25 basis points on Wednesday, July 14, the first increase since the global financial crisis, citing the recovery in the economy and rising inflationary pressure across Asia.

The Bank of Thailand raised its one-day repurchase rate to 1.50% from a record low of 1.25%, as expected, and analysts said another increase in August was likely to curb inflationary pressure in Southeast Asia's second-biggest economy.

"The Bank of Thailand will pay more attention to dealing with the inflationary pressures on the horizon," said Usara
Wilaipich, an economist at Standard Chartered Bank, who expects a further increase of 25 basis points in both August and October.

Thailand joins other Asia-Pacific countries, including Australia, India, Malaysia, Taiwan and South Korea, that have
started to unwind easy monetary policies to tackle inflation as their economies recover from the global recession.

"Asian economies have been expanding robustly, with more evident signs of inflationary pressure in the periods ahead,"
the central bank said in a statement.

"Exports and private investment have been growing continuously" in Thailand, it added. "Overall, the growth of
the Thai economy is therefore projected to be higher than previously anticipated."

Modern Thailand's worst political violence in April and May appears to have had only a limited impact on the $264 billion economy, the central bank said, adding there had been minimal impact from euro zone problems on Thai exports.

"It's hardly a case of tightening the screws, sharply tightening monetary policy," economist David Cohen of Action
Economics in Singapore said of the rate rise.

"It's more likely just bringing it back to a more normal range," he added. "That's why we can expect a couple more hikes
in the rest of the year."


Nine out of 16 analysts had expected a 25 basis point rise on Wednesday while seven others had predicted no change. The
central bank cut its policy rate by 250 basis points to 1.25% between December 2008 and April 2009.

The baht barely moved, trading at 32.30 per dollar after the decision. The main stock market index was up 0.6 percent,
also little moved.

Benchmark five-year bond yields initially edged up and then eased by a couple of basis points after the decision and were unchanged on the day at 3.04% -- within striking distance a two-month peak of 3.18 percent hit on Monday. The
central bank had said it was looking to "normalise" rates but that the decision would depend to some extent on political
developments after recent unrest.

"The impact of the domestic political situation on the Thai economy in the second quarter proved to be limited," said
Paiboon Kittisrikangwan, an assistant central bank governor, in a statement.'' ''

"The tourism industry has shown signs of a quick recovery, while consumption and production were little affected and projected to expand for the rest of the year."

The political violence in April and May killed 90 people and wounded more than 1,800 before troops ended protests in
central Bangkok.

In April, the Bank of Thailand forecast 2010 economic growth of 4.3% to 5.8% but Governor Tarisa Watanagase has
said that could be raised when new forecasts are released on July 23.

Annual inflation eased to 3.3% percent in June from May's 3.5%, while annual core inflation -- which excludes
energy and fresh food -- was 1.1% in June after 1.2% in May, the highest since March 2009.

The central bank aims to hold core inflation in a range of 0.5%-3.0% and sets policy to achieve that. It forecast
annual core inflation would be 1% to 2% this year. - Reuters

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