chamber not keen on a rise in policy rate

Low consumer confidence last month convinced the University of the Thai Chamber of Commerce that the Bank of Thailand should not hike its policy rate tomorrow.

An increase would further dampen demand and economic sentiment, according to the university's Economic and Business Forecasting Centre.

A poll it conducted showed consumer confidence had dropped from 78.8 points in May to 78 points in June, due mainly to rising retail oil prices, political instability and the high cost of living.

"We believe consumer confidence will continue to decline until the political situation becomes more stable. Nonetheless, we forecast that domestic consumption will recover next year at the soonest," said centre director Thanawat Polvichai.

Indices referring to consumer confidence about the economy, job opportunities and future earnings were all below 100. Those for job opportunities and future earnings dropped from 71.8 points in May to 71.1 points in June and 92.8 points to 92 points, respectively.

Thanawat said the economy this year was mainly being driven by exports, not by consumption and investment. The Bank of Thailand must think carefully if it planned to raise the policy rate to tame inflation.

Many bankers had voiced support for a rate hike as they feared a wage spiral, with workers demanding higher wages in response to rising goods prices on the back of increasing oil prices.

While some economists anticipated an increase of 50 basis points in the second half, others said hikes would hurt investment and consumption.

"The right direction for the government is to speed up stimulating mega-projects," Thanawat said.

Saowanee Thairungroj, vice president of the university's Research Division, said: "It is contradictory if we raise the interest rate when we need to stimulate demand. We should not boost the interest rate to control inflation resulting from rising oil prices."

Thai Chamber of Commerce vice chairman Dusit Nontanakorn said the situation was too complicated to solve without the help of all parties. The government should place importance on the Public-Private Joint Committee rather than worsen the overall economy.

The centre was considering adjusting its projection for economic growth due to more negative factors. Thanawat said the new figures depended on upcoming significant situations such as the Cabinet reshuffle, the revision of the interest rate and the Finance Ministry's stimulus policies.