BANGKOK: Thailand's central bank raised its benchmark interest rate by 25 basis points to 2.50 percent on Wednesday, March 9, its fifth increase in six meetings, and signalled more tightening ahead as Asia confronts mounting price pressures.
The rise in borrowing costs by one of Asia's most hawkish central banks follows China's increase in interest rates last month for the second time in just over six weeks, illustrating a multi-front fight against inflation in Asia -- from oil-price shocks to food inflation and strong consumer spending.
"Rising oil prices remain as key threat to inflation in Thailand," said Usara Wilaipich, senior economist at Standard Chartered Bank, forecasting Thailand's one-day repurchase rate to rise by another 50 basis points by year end.
With crude oil prices hovering near a 2-1/2-year high, central banks across Asia are under pressure to act.
Fourteen out of 16 analysts surveyed by Reuters expected the Bank of Korea to raise its base rate by 25 basis points to 3.00 percent on Thursday, after it surprised markets by leaving rates unchanged in February.
Bank Indonesia kept interest rates unchanged last week but assured financial markets it would steadily, if gradually, tighten policy. Malaysia, the first Asian central bank to lift borrowing costs in 2010, reviews rates on Friday.
Thailand, Southeast Asia's second-largest economy, has Asia's lowest interest rates after Taiwan. Most economists had expected the Bank of Thailand to raise its benchmark rate by 25 basis points.
FURTHER "NORMALISATION"
The Bank of Thailand raised its forecast for headline inflation for this year to between 3 and 5 percent, up from a range of 2.5 to 4.5 percent. It said its rate-setting Monetary Policy Committee would "closely monitor inflationary pressure going forward and stands ready to take necessary action."
The central bank has widely flagged the need to "normalise" rates after aggressive cuts during the financial crisis, and has warned inflation was among the biggest risks facing Thailand as emerging economies worldwide grapple with rising commodity prices and a resurgence in domestic economies.
"Gradual normalisation remains appropriate for anchoring inflationary expectations and reducing the risk of financial imbalances in the economy," the central bank said in a statement.
The baht was steady after the decision, trading around 30.30/35 per dollar. Five-year bond yields declined two basis points to 3.36 percent.
The trend-setting policy rate is now at its highest since Dec. 3, 2008, following a similar quarter-point rise to 2.25 percent in January, part of a process that began in July to lift rates from a record low 1.25 percent.
The Bank of Thailand has also expressed concern about negative real interest rates amid projections for increase in inflation this year, boosted by an average 6.4 percent rise in Thailand's daily minimum wage, plans for a 5 percent increase in civil servant salaries in April and commodity prices.
Adding to those concerns, a fuel subsidy may be lifted at the end of April and Prime Minister Abhisit Vejjajiva has promised a 25 percent rise in minimum wages over the next two years if he prevails in a mid-year general election.
The central bank has forecast growth of 3.0-5.0 percent for 2011 and core inflation -- which excludes volatile energy and fresh food prices -- of 2.0-3.0 percent, near the top of its target range of 0.5-3.0 percent, which it sets policy to achieve.
Annual core inflation rose to 1.45 percent in February from 1.32 percent in January, while the headline rate eased to 2.87 percent from 3.03 percent, due in part to government subsidies and price controls on certain goods.
Thailand's economy grew a better-than-expected 1.2 percent in the final quarter of 2010 on a seasonally adjusted basis, after contracting a revised 0.3 percent in the third, due to robust exports, stronger domestic consumption and high tourist arrivals. - Reuters
The rise in borrowing costs by one of Asia's most hawkish central banks follows China's increase in interest rates last month for the second time in just over six weeks, illustrating a multi-front fight against inflation in Asia -- from oil-price shocks to food inflation and strong consumer spending.
"Rising oil prices remain as key threat to inflation in Thailand," said Usara Wilaipich, senior economist at Standard Chartered Bank, forecasting Thailand's one-day repurchase rate to rise by another 50 basis points by year end.
With crude oil prices hovering near a 2-1/2-year high, central banks across Asia are under pressure to act.
Fourteen out of 16 analysts surveyed by Reuters expected the Bank of Korea to raise its base rate by 25 basis points to 3.00 percent on Thursday, after it surprised markets by leaving rates unchanged in February.
Bank Indonesia kept interest rates unchanged last week but assured financial markets it would steadily, if gradually, tighten policy. Malaysia, the first Asian central bank to lift borrowing costs in 2010, reviews rates on Friday.
Thailand, Southeast Asia's second-largest economy, has Asia's lowest interest rates after Taiwan. Most economists had expected the Bank of Thailand to raise its benchmark rate by 25 basis points.
FURTHER "NORMALISATION"
The Bank of Thailand raised its forecast for headline inflation for this year to between 3 and 5 percent, up from a range of 2.5 to 4.5 percent. It said its rate-setting Monetary Policy Committee would "closely monitor inflationary pressure going forward and stands ready to take necessary action."
The central bank has widely flagged the need to "normalise" rates after aggressive cuts during the financial crisis, and has warned inflation was among the biggest risks facing Thailand as emerging economies worldwide grapple with rising commodity prices and a resurgence in domestic economies.
"Gradual normalisation remains appropriate for anchoring inflationary expectations and reducing the risk of financial imbalances in the economy," the central bank said in a statement.
The baht was steady after the decision, trading around 30.30/35 per dollar. Five-year bond yields declined two basis points to 3.36 percent.
The trend-setting policy rate is now at its highest since Dec. 3, 2008, following a similar quarter-point rise to 2.25 percent in January, part of a process that began in July to lift rates from a record low 1.25 percent.
The Bank of Thailand has also expressed concern about negative real interest rates amid projections for increase in inflation this year, boosted by an average 6.4 percent rise in Thailand's daily minimum wage, plans for a 5 percent increase in civil servant salaries in April and commodity prices.
Adding to those concerns, a fuel subsidy may be lifted at the end of April and Prime Minister Abhisit Vejjajiva has promised a 25 percent rise in minimum wages over the next two years if he prevails in a mid-year general election.
The central bank has forecast growth of 3.0-5.0 percent for 2011 and core inflation -- which excludes volatile energy and fresh food prices -- of 2.0-3.0 percent, near the top of its target range of 0.5-3.0 percent, which it sets policy to achieve.
Annual core inflation rose to 1.45 percent in February from 1.32 percent in January, while the headline rate eased to 2.87 percent from 3.03 percent, due in part to government subsidies and price controls on certain goods.
Thailand's economy grew a better-than-expected 1.2 percent in the final quarter of 2010 on a seasonally adjusted basis, after contracting a revised 0.3 percent in the third, due to robust exports, stronger domestic consumption and high tourist arrivals. - Reuters
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