Economists are split on whether the Bank of Thailand's rate-setting committee on June 7 will maintain the policy-signal rate at 4.75 per cent or opt for a 25-basis-point hike to tame fuel-fed inflation.

Olarn Chaiprawat, an adviser to the Finance Ministry, said that the central bank's Monetary Policy Committee would not follow in the footsteps of the US Federal Reserve Board and bump the short-term rate up because the Finance Ministry has sent a clear signal for no more increases. A rate revision would exacerbate the burden on consumers and businesses caused by high interest rates, soaring oil prices and the appreciating baht.

"There's a good chance that the MPC will maintain the rate at 4.75 per cent at its next meeting, due mainly to the political uncertainties which have convinced the private sector to withhold investment and reduce consumption. If the rates are adjusted higher, operating costs will rise," Olarn told a seminar yesterday.

"State banks have been told to maintain rates but it would be easier for the central bank to hold off on the rate hike. The public has been suffering, which should result in reduced consumption. Policies can adjust to changing realities and economic conditions," he said.

After the US fed funds rate was raised to 5 per cent, expectations grew that the Thai central bank would follow suit to keep its 14-day repurchase rate on par.

However, most economists in a Dow Jones survey predicted that the Bank of Thailand would raise the 14-day repurchase rate at least 25 basis points to 5 per cent at the June 7 meeting.

"Higher-than-expected oil prices complicate the picture. Despite the argument that inflationary pressures are purely supply driven (due to rising oil and related prices), and Thai GDP growth may encounter downside risks from depressed domestic demand, we think it's likely that the central bank might want to err on the safe side by going for another 25-basis-point increase in June," Kasikornbank said.

Economists have raised other issues, including negative real deposit rates and threats to the core inflation rate if oil keeps rising.

The Dow Jones survey also found that the consumer price index for this month was likely to show no easing on the year due to pressure from persistently high oil prices.

The survey found that economists expected the May CPI to rise 6 per cent on the year, as it did in April. Phatra Securities noted that if oil prices kept climbing, core inflation may threaten the upper end of the central bank's inflation-targeting range of 0-3.5 per cent.

Caretaker Finance Minister Thanong Bidaya said earlier that the central bank's tightening monetary policy should come to an end, as inflation has already been brought under control. His suggestion, however, did not get a firm response from the central bank. Thanong's request is tantamount to the first formal intervention in the central bank's monetary policy.

Bank of Thailand Governor Pridiyathorn Devakula on Tuesday said the Monetary Policy Committee must evaluate the economy and make a sound decision on whether to raise interest rates. He said he was not concerned about volatility in capital movements.

Tarisa Watanagese, the central bank's deputy governor, said inflation remained the top priority for the monetary policy decision-making process, but the central bank would also take into account other economic factors.

"The central bank will consider which side has the highest risk. We don't know now and have to evaluate information carefully," she said.

She admitted that it was not really necessary to raise the key rate to match the fed funds rate. The rate decision would depend on internal factors.

The global market has recently been expecting the Fed to continue its rate hikes to temper inflation. That prospect has turned regional stock markets bearish.

On Wednesday, the fed funds rate and the yield on 10-year US Treasury bonds were briefly inverted for the first time in five years, indicating the negative economic outlook in the US.

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