Thailand holds rates

2012 growth forecast raised to 5.7% from 4.9%

BANGKOK: Thailand’s central bank left its main interest rate unchanged at 3% yesterday, pausing after two cuts to help the economy recover from severe flooding and sounding a warning about high oil prices, which may push up inflation.

However, many economists expect it to leave the policy rate unchanged for the rest of the year, given the fragility of the economy.

The Bank of Thailand raised its gross domestic product growth forecast for 2012 to 5.7% from the 4.9% seen last month and slightly increased its projections for headline and core inflation to 3.4% and 2.4% respectively.

“The MPC (Monetary Policy Committee) assessed that the risks from the global economy had decreased and that the recovery in the Thai economy was gaining momentum. At the same time, inflationary pressure had edged up,” the MPC said in a statement.

“Domestic demand continued to be the main driving force for the economy, supported by improvements in income, employment and private sector confidence, as well as government stimulus measures and accommodative monetary conditions.”

The worst floods in half a century battered industry in October and November last year and many factories have still not reopened.

Only about 44% of the 838 manufacturing plants on seven huge, flood-hit industrial estates had resumed production, according to Supap Klikachai, an aide to the industry minister.

The MPC repeated its view that production remained on track to return to normal levels by the third quarter of this year.

“We think the central bank will keep its wait-and-see approach to assess economic recovery, mainly in industrial manufacturing and exports, which are just seeing signs of gradual improvement after the flooding,” said Kevalin Wanpichayasuk, an economist at Kasikorn Research Centre.

South-east Asia’s second-largest economy grew just 0.1% last year due to the floods, but it is expected to bounce back strongly thanks to reconstruction work and government economic stimulus policies, plus a low base effect.

The central bank had cut its policy rate by a combined 50 basis points at the two previous meetings in November and January this year after pausing in October following nine rises since mid-2010 to tame inflation.

All but one of 14 economists polled by Reuters had forecast rates would be left unchanged yesterday, saying the central bank would want to assess the impact of those two cuts and monitor inflation risks as oil prices rose.

Although it saw little to worry about in the short term, the MPC said the rise in oil prices plus a big increase in the minimum wage from April could be inflationary. – Reuters