Observers say any attempt to stimulate the economy and urge the central bank to end its tightening monetary policy will do more harm than good.

While the US Federal Reserve is facing a "classic dilemma" of high inflation and sluggish economic growth, the Bank of Thailand (BOT) is facing Thailand's traditional problem of politically led growth-oriented policies and a need to maintain stability to curb inflation.

American observers say the US economy is in mild stagflation, and they question whether the US central bank can keep pressure on prices in check.

Several critics point to rising inflation that is in need of a continued tight monetary policy.

At the same time the Fed's two-year credit-tightening campaign is beginning to bite with the housing market sagging and consumer confidence wavering, which may result in slower growth.

While President George W Bush seems likely to face a headache amid his tumbling popularity with congressional elections coming in November, Thaksin Shinawatra's caretaker government does not want to see a rate hike again amid falling consumer confidence. Thailand's next election is also expected before the end of the year, and the politicians will be wary about making too many enemies.

The BOT's Monetary Policy Committee is to meet again on June 7.

The hardest decision the central bank will be forced to make is said to be whether to maintain its 14-day repurchase rate at 4.75 per cent or to increase it another quarter of a point.

It has repeatedly told the public that its stance leans toward stability rather than growth.

Political pressure is mounting against a rate hike. Many will also have to keep an eye on the US Federal Reserve's decision on rate movement at its meeting in late June. The Fed fund rate stands at 5 per cent.

Olarn Chaiprawat, adviser to the  Finance Ministry, suggested last week that the BOT should not follow the US Federal Reserve in raising the policy rate after caretaker Finance Minister Thanong Bidaya sent a clear signal suggesting an end to the policy-rate hike.

Olarn's statement increased political pressure on the central bank. Thanong's argument is that current inflation is a result of cost-push pressure rather than demand-pull, so that higher rates would not help. But some economists disagree, arguing that there is also demand-pull inflation as

the Kingdom had been under a low-rate environment for a long period before the rate increase last year.

The government has few options. Its treasury reserves have dried up until it has been forced to build short-term debts to finance spending. The delayed general election has also reduced spending.

Yet some observers argue the delay in investment for the mega-projects will not have a great effect this fiscal year or even early in the next as spending in the early stages of the giant schemes will be small and only increase gradually.

Porametee Vimolsiri, adviser to the National Economic and Social Development Board, said rising interest rates had clearly slowed economic growth and were a greater concern than inflation.

He said the whole economic engine had slowed, including consumption and investment, while there was still uncertainty in exports. He believes the inflation rate will decline in the second half of this year.

However, critics said any stimulus or relaxation on inflation-tackling measures would do more harm than good.

Vimut Vanitchareonthum, an economics lecturer at the University of the Thai Chamber of Commerce, suggested the central bank concentrate on stability. To stimulate the economy would not solve a problem but rather create fresh trouble, he argued.

Vimut said rising inflation would hit households, in particular those who kept large amounts of their savings in cash rather than investing it.

Up to 57.7 per cent of Thai households hold much of their money in cash, and 73 per cent of them have a monthly income below Bt4,000.

Economic slowdown has been seen in both the US and Thailand as house sales dropped along with overall business sales, but it seems that the Thai central bank has a clearer stance on stability, and it is also apparent that it is the politicians, rather than economists, that are urging a halt to the inflation-battling measures in Thailand, while the US politicians have left their central bank with a freer hand in monetary-policy management. It will be interesting to see how the countries weather their respective dilemmas.