The Bank of Thailand is likely to raise its policy rate by 25 basis points as planned on March 8 to tame inflation, despite the current political uncertainties which could dent consumer confidence and spending, according to financial sources.

DBS Securities' macroeconomic team predicts a 25-basis-point hike to 4.50 per cent, but with reservations.

"After all, March 8 is the last day for the opposition to submit candidates to contest the election, if they choose to do so. Should the situation become more uncertain as the deadline approaches, the central bank may choose to stay on the sidelines and skip the coming meeting," DBS Securities said in its report.

Thanomsri Fongarunrung, an economist at Phatra Securities, believes the central bank will take action on March 8 because January's economic figures were still buoyant.

"We will have to wait and see the impact from the political conflict. Right now, there is no short-term impact on the economy," she said.

Usara Wilaipich, a senior director at Standard Chartered Bank (Thai) foresees a rate hike since core inflation would tend to reflect increases in bus fares, electric bills and production costs. The central bank also needs catch up with the US federal funds rate, which was raised to 4.5 per cent, to stabilise fund flows which could affect the baht's exchange rate against the dollar.

"The baht sentiment is fragile despite the current appreciation. Politics needs to be closely monitored because it could cause capital outflows. The outflow will put pressure on the baht and inflation," she said.

Although the political turmoil would hurt investor and consumer confidence, the economy was likely to expand by 4.1 per cent this year, she said, adding that price stability continues to be the central bank's prime concern.

Standard Chartered expects the policy rate to peak in the middle of this year at 5 per cent.

Several economists have also voiced concern that inflation could go higher due to many factors, including new populist policies.

Over the weekend, Prime Minister Thaksin Shinawatra outlined the policies in his re-election campaign, with many focused on helping rural families. Chief among them are raising the minimum wage and increasing debt relief for farmers.

CLSA Securities (Thailand) Ltd said if Thaksin is re-elected, he will probably push through these policies to thank his supporters.

"In addition to this, rural-household incomes will rise as politicians court the rural electorate in order to win votes ahead of the election on April 2. Rural incomes are already rising as a result of rising rubber, sugar and rice prices (farm incomes rose 20 per cent last year). Recent results from companies exposed to rural households have already shown strong growth from rural Thailand and this will continue."

The central bank also signalled a further rate hike, insisting that despite the delay in the mega-investment project, economic growth remains on track. The Bank of Thailand's growth projection of 4.75-5.75 per cent for this year factors in half of the government's planned mega project investment this year.

Amphon Kittiampon, secretary-general of the National Economic and Social Development Board, said oil prices so far this year remained above forecast, at US$55 (Bt2,165) against the estimated $50 per barrel.

Though the central bank remains bullish on the economic outlook, the University of the Thai Chamber of Commerce has come up with nasty growth scenarios depending mainly on the fate of the mega projects.

Thanawat Pholwichai, director

of the university's Economics and Business Forecast Centre, said the immediate impact from the snap election is the delay of the mega projects, which were expected to inject Bt200 billion to Bt300 billion into the economy. Gross domestic product growth could be slashed, according to three scenarios.

In the worst-case scenario, if the political conflict becomes so severe that the April 2 election is called off, the political protests continue and the mega projects are delayed, GDP growth might fall to 3.5-4 per cent.

If the election can be held in 60 days and the new government can start the mega projects next year and there's more clarity in the political situation, GDP might grow by 4.3-4.5 per cent. Thanawat said his centre views this as the most probable scenario.

If the government decides to set up an interim government with a new premier bestowed by His Majesty the King to oversee constitutional reform and the mega projects are delayed to the middle of next year, GDP growth should be cut to 4 per cent. This is because the interim government was not supposed to make any economic obligations.

The most affected stakeholders are the construction firms that had planned to participate in the mega projects, machinery and equipment manufacturers and suppliers and entertainment providers. Instant noodle producers and the export sector should not be harmed by the current political uncertainty.