BOT warns of lingering threats

"There is a large possibility that the economy in the second half will decelerate more than the first half, if the oil price is still escalating and the sub-prime crisis is protracted," said Atchana Waiquamdee, the central bank's deputy governor.

However, the central bank believes that the Thai economy remained sound in the second quarter, even though it ran slightly slower than the 6-per-cent pace of the first half.

The US foreclosure crunch would take the wind out of the Kingdom's exports, she said.

The world's largest economy did well in the first half, with supportive fiscal measures to boost consumption, but if the tax rebates lose their charge in the third quarter, then purchasing power, aggravated by the housing market meltdown, would likely weaken, she said.

However, the economy here would not experience a crisis and slide backwards like the 10-per-cent contraction of 1999.

The central bank insisted that it looked at growth, including employment, before raising its policy interest rate. The labour market remained tight and industrial production was at full capacity. "But if we have to select between economic stability and growth, we have to choose stability," she said.

Rates are on an upward trend but the effect could be neutralised if the economy was really weak and soaring oil and commodity prices did not create a second-round effect.

The central bank's new economic forecast due on Monday, which assumes oil at US$135 per barrel in the baseline scenario and $176 in the worst case, is expected to revise growth down from the current 4.8 to 6 per cent this year and 4.5 to 6 per cent next year.

Both headline and core inflation are expected to be adjusted upward after prices surged relentlessly to  a 10-year high of 8.9 per cent in June.

Prasert Bunsumpun, president of PTT, said PTT would today slash its retail gasoline price by Bt4.70 per litre and diesel price by Bt3.50.