BOT chief moves to assure inflation is under control

By raising the rate by just 0.25 per cent, the bank signalled it would not tolerate a disruption to price stability, which could derail the economy.

She noted that in countries that adopted a disciplined inflation-target regime, more than 80 per cent had seen their targets breached.

So far, four central banks had reacted by lowering rates including those in New Zealand and UK, due to a domestic recession.

Despite the 25 basis point increase last week, Thailand's rate was still among the lowest in the region.

"It [the rate cut] was necessary. We needed to assure everyone that inflation is under control and would not get out of hand," she said.

"The BOT would remain an economic pillar. I can take personal attacks but not attacks against the central bank. Using an incorrect inflation [policy] will hurt the bank's credibility. If anything is wrong, we should fix it," she said.

Despite some criticism that the bank could have strengthened the baht [exchange rate] rather than raising the policy rate, she stood firm on the need to tighten money supply.

Despite a weak showing in domestic demand and investment, Thailand's export income had been rising steadily, she noted.

At times when inflation expectation is high, the BOT has been concerned that when manufacturers raise product prices, wage increases could follow and set the stage for economic malaise.

Lending growth over the past six months also reflected continued economic expansion.

Manufacturers expect higher inflation in the next 12 months, and a BOT survey showed inflation could rise 9 per cent while an earlier survey showed a lower rate because oil prices had not yet spiked to record levels.

The percentage of manufacturers harbouring inflation expectations had also risen lately, she said.