With economic figures for June showing that both domestic demand and the manufacturing sector are taking a battering from soaring oil prices, higher interest rates, political uncertainty and dampened consumer and business confidence, two large local banks have decided once again to hike their prime interest rates.

Siam Commercial Bank announced yesterday that it would raise its lending and deposit rates by 25 to 50 basis points, effective today. A few hours later, Kasikornbank followed with a similar hike of between 25 and 50 basis points, confirming predictions that SCB's move was likely to trigger this year's third round of interest rate hikes by large banks.

Their announcement came as the Bank of Thailand (BOT) announced that the private consumption index stagnated and the private investment index grew by only 0.4 per cent in June year on year.

Although the manufacturing production index rose by 6.2 per cent, year on year, in June, it was a lot slower than the 9.2 per cent growth recorded in May and followed plunging domestic demand.

Suchada Kirakul, senior director of the BOT, said sales of passenger cars and motorcycles contracted 1.2 per cent and 3.5 per cent, respectively, in June. However, sales of some products increased because of the World Cup and celebrations for the 60th anniversary of His Majesty the King's accession to the throne.

"Higher interest rates have caused consumers to save rather than to spend," Suchada said. "They have been cautious about spending and car financing and credit card borrowing."

Siam Commercial Bank's minimum lending rate, minimum overdraft rate, and minimum retail rate will be raised 25 basis points today to 7.75 per cent, 8 per cent, and 8.25 per cent, respectively. The bank's three-, six- and 12-month deposit rates will be raised to 3.5 per cent to 4.75 per cent; 3.75 per cent to 4.75 per cent; and 4 per cent to 5 per cent, respectively.

Meanwhile, the BOT said year-on-year commercial vehicle sales and cement sales contracted 16.3 per cent and 1.9 per cent, respectively, in June, indicating the slowdown in private investment.

The private consumption index grew only 1 per cent growth in the first half of the year. The private investment index rose by 0.4 per cent and 1.3 per cent in the second quarter and the first half, respectively.

The manufacturing production index in the second quarter rose by 6.4 per cent, lower than 9.7 per cent in the first quarter. Suchada said the slowdown in production was caused by decreasing consumption and a high base effect.

The business sentiment index was 43.7 points in June, having been lower than 50 points for 26 consecutive months. It fell from 48.2 points in May, and is forecast to climb to 47.9 in the third quarter.

The BOT forecasts that private consumption for the entire year will grow at 3.5 per cent to 4.5 per cent and private investment 4.5 per cent to 5.5 per cent.

The Deutsche Bank also weighed in with some pessimistic forecasts yesterday, predicting that Thailand's gross domestic product would grow by only 3.8 per cent next year, well below the BOT's latest estimate of 4 per cent to 5.3 per cent, due to the global economic slowdown.

"Asian emerging markets are in most cases still heavily dependent upon demand in the US and Europe to sustain growth and this region will tend to slow down even faster than the G3 [the US, Japan and Europe]," said the bank's chief economist for Asia, Michael Spencer.

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