BANK OF THAILAND
Key rate looks set to rise again
Expected 25-basis-points rise attributed to BOT's continued focus on inflation
The Bank of Thailand (BOT) is likely to raise its policy-signal rate by another 0.25 of a percentage point to 4.75 per cent in today's Monetary Policy Committee meeting amid the improving political situation, according to economists.
Last week caretaker Prime Minister Thaksin Shinawatra announced that he had decided not to take the premiership in the new government.
Usara Wilaipich, a senior economist at Standard Chartered Bank (Thai), said there had been inflationary pressure from increasing oil prices that needed a tighter monetary policy. The inflation rate, which had been calm for months, picked up again last month.
Headline inflation in March surged by 5.7 per cent year on
year, compared with 5.6 per cent in February.
Core inflation, the BOT's policy target, also rose by 2.6 per cent in March, higher than the 2.4 per cent in February.
The crude-oil price quoted on the Dubai market on Friday was at US$61.55 (Bt2,349) a barrel, up 4 per cent within three months and 16 per cent from a year ago.
Usara argued that although
the political turmoil had put
some pressure on economic growth, dampening confidence of consumers and investors, the central bank continued to regard inflation-targeting as its first priority.
"I believe the BOT's monetary targeting is continuously focusing on inflation rather than economic growth, and the political
wrangle has died down, leading
to increasing confidence," she
Syrus Securities' senior economist Sirinattha Techasiriwan agreed with Usara, saying that
the central bank needed to raise its policy rate to curb infla-
tion. She said the political situation had improved and there was no clear sign of an economic slowdown.
"Earlier the political stalemate adversely affected confidence, which has improved now that a political way out has been found," she said.
Kasikorn Research Centre (KRC) forecasts that the Monetary Policy Committee
will lift the key rate in this
year's third meeting today due
to the inflation rate of 5.7 per cent in March, which was higher than the market expectation of 5.1 per cent.
The research house said in a report that Thaksin's stepping down was a positive factor for the economy.
It said the political change would not have a direct impact on the BOT's policy decision-making and the central bank would concentrate more on the inflation rate than on other factors.
"However, if we look forward, we see that political uncertainty has not disappeared completely," the report stated. "There are many issues waiting to be solved. Until the end of next year the political situation will depend on whether progress is acceptable to all parties, particularly on political reform and constitutional amendment."
In addition the analysts believes the BOT is likely to maintain an interest-rate spread between the US federal-funds rate and the 14-day repurchase rate by pushing another quarter-percentage point in line with the world largest economy's rate, which is currently 4.75 per cent.
The BOT also wants to bolster household savings by encouraging real deposit interest rates to enter positive territory soon. Increased savings would lessen the current-account deficit, Usara said.
"There has been inflationary pressure, meaning that the real rate is not high enough," she said.
The 12-month real deposit interest rate was a negative
figure of 0.85 per cent in February, compared with minus 1.11 per
cent in January, according to the BOT.
Usara said the policy rate would probably peak at 5 per cent at the next meeting on June 7, in line with the Fed funds rate, which is expected to be raised to 5 per cent in May. Domestic inflation is expected to peak in the second quarter of this year.
She said economic growth would be driven mainly by exports rather than private investment and consumption due to the government's delayed mega-projects.
KRC has kept its economic forecast at 4-5 per cent with a bias towards the lower range of the projection. The BOT's economic projection this year is 4.75-5.75 per cent, but that will be reviewed at the end of this year.