Bond markets and consumer confidence up

Central bank bonds accounted for 89 per cent of trading value, while government bonds represented only 6.44 per cent of the total.

Yields shifted up along the yield curve during the month. Although the markets were expecting high rates of inflation over the next several months as a result of pressure from accelerating oil and commodity prices, April's inflation figures were nevertheless a surprise. The inflation rate for April was 6.2 per cent, one percentage point above consensus expectation of 5.2 per cent and well above the previous figure of 5.3 per cent. The core Consumer Price Index (CPI) also rose to 2.1 per cent, when the consensus predicted 1.8 per cent and the previous figure was 1.7 per cent.

Short-term bonds with maturity of less than three years shifted up between 20 and 50 basis points, while medium-term bonds with maturity between five and 10 years shifted up 15 to 43 basis points and long-term bonds with maturity greater than 10 years rose 15 to 30 basis points. Notably, the benchmark bond yield - LB133A - crept up to 4.06 per cent from 3.77 per cent and LB183B reached 4.75 per cent from 4.59 per cent at the beginning of the month.

At its meeting on April 9, the Monetary Policy Committee decided to keep the policy interest rate unchanged at 3.25 per cent for the sixth consecutive time since August last year.

The MPC's main concern was inflationary pressure stemming mainly from high oil and commodity prices on world markets.

The Commerce Ministry announced that the headline CPI in March had risen by 5.3 per cent over the figure for one year earlier. In that time, the core CPI had also risen by 0.6 per cent.

The MPC believes these pressures are likely to moderate in the latter part of this year and that overall growth of the economy may be sustained from domestic demand. However, it says it needs to monitor both economic growth and inflationary issues closely.

In the United States, the Federal Open Market Committee decided

on April 30 to lower the US Fed rate by a further 25 basis points to 2

per cent, as expected.

However, thismay be the last time the Fed cuts its rate because inflationary pressure is also looming there. In the past eight months, the Fed has cut its rate seven times, combining to make a total fall of 3.25 percentage points.

The market sentiment towards Thai politics remains uncertain following the Election Commission's decision that two coalition parties (Chart Thai and Matchima Thipataya) were involved in electoral deceit.

Nevertheless, consumer confidence still displayed positive signs of recovery, achieving a 14-month high of 73.8 points in March, up from 72.6 in February.

For the export sector, trade data from March were moderately better than expected, with exports up 14.4 per cent and imports up by 33 per cent, giving a trade surplus of US$160 million (Bt5 billion).

In first quarter, exports expanded roughly 20.8 per cent and imports rose by 38 per cent.

The central bank has revised its economic forecasts for 2008 by raising its projection for CPI growth this year from a range of 2.8 to 4 per cent to a new range of 4 to 5 per cent, due to abrupt rises in oil and commodity prices. The revision parallels that of the Commerce Ministry, which has lifted its estimate of CPI growth from a 3 to 3.5 per cent range to 5 to 5.5 per cent.

The Bank of Thailand has also modified its forecast for growth of gross domestic product from a range of 4.5 to 6 per cent to a more optimistic 4.8 to 6 per cent, in response to the government's economic stimulus packages and the imminent start of mega-projects.