The real 12-month deposit rate picked up from minus 1.17 per cent in December following a series of time-deposit rate hikes by commercial banks.

However, the change in the real rate was lower than the increase in nominal interest rates due to high inflation in January.

January’s inflation rate reached 5.9 per cent, the same as December, but headline inflation for the next 12 months is expected to rise at a slower rate, said a BOT source.

The central bank has projected that this year’s headline inflation would range between 3.5 per cent and 5 per cent, compared to 4.5 and 5 per cent last year.

BOT Governor MR Pridiyathorn Devakula said earlier that real rates would return to positive territory by the first half of this year as the BOT continues to raise its policy rate.

The 14-day repurchase rate now stands at 4.25 per cent and commercial banks have raised fixed-deposit rates a number of times since last year. But the rate for savings accounts, which represent the biggest portion of deposits, remained unchanged at 0.75 per cent.

The BOT said local depositors would respond to a positive real rate and the country’s household savings would rise as a result. The move would also help curb the prevailing current account deficit.

Household savings accounted for 14.4 per cent of gross domestic product in 1989. But as deposit rates sank, it fell sharply to 4 to 5 per cent in 2003.

“If inflation is in line with expectations, we will see a positive deposit rate by the middle of the year,” said one source who did not want to be named.

The source, however, said the real rate would depend not only on the policy rate, but also on the expected inflation rate over the next 12 months.

“If the real interest rate turns positive but inflationary pressures continue, a further rise in key rates will be necessary,” he said.

The central bank said average inflation would be slightly lower than 6 per cent in the beginning of this year but that it would fall to about 3 per cent at the end of the year.

Meanwhile, the real minimum lending rate (MLR) in January stood at 2.6-2.7 per cent, higher than 2.1 per cent in December.

A rate hike would mean higher financing costs for borrowers. The Real MLR would need to take into account the expected 12-month inflation rate.

The average 12-month deposit rate and MLR at four of the biggest banks is 2.5 per cent and 6.5 per cent, respectively.

Anoma Srisukkasem

The Nation