Bank of Thai­land in­creases pol­icy rate to two per­cent

The Pak Banker - - Company& -

BANGKOK: The Bank of Thai­land (BoT) has fol­lowed re­gional cen­tral banks by in­creas­ing in­ter­est rates be­cause of its con­cerns that low in­ter­est rates would fan in­fla­tion.

The overnight bond in­ter­est rate now stands at 2% af­ter the quar­ter-point boost yes­ter­day. The move sur­prised an­a­lysts be­cause of weak eco­nomic data in Oc­to­ber, but they ex­pect the cen­tral bank will con­tinue rais­ing in­ter­est rates spo­rad­i­cally in 2011.

Lo­cal busi­ness as­so­ci­a­tions op­posed an in­crease for fears that wider in­ter­est dif­fer­en­tials with the US would cause the baht to ap­pre­ci­ate rapidly.

The baht gained by the most in al­most two months yes­ter­day, trad­ing late yes­ter­day at 30.05/06, com­pared with 30.20/23 on Tues­day.

Pai­boon Kit­tis­rikang­wan, a cen­tral bank as­sis­tant gover­nor, said sav­ings in­cen­tives, mea­sured by the pre­vi­ous bench­mark rate, stood be­low av­er­age price in­creases by 1.6% to 1.7%, and this was among the low­est in the re­gion. "It is not ap­pro­pri­ate to have this rate, in­fla­tion-ad­justed, stand­ing in neg­a­tive ter­ri­tory. But we will as­sess the sit­u­a­tion and clar­ity of the en­vi­ron­ment for our next moves," he said.

The cen­tral bank's Mon­e­tary Pol­icy Com­mit­tee meets ev­ery six weeks with a tar­get to con­trol in­fla­tion, ex­clud­ing food and en­ergy, at 3%. Yes­ter­day's de­ci­sion was the third in­ter­est rate in­crease since July.

Su­pavud Saichuea, man­ag­ing di­rec­tor at Pha­tra Se­cu­ri­ties, said an ap­pre­ci­at­ing dol­lar and con­cerns about the Korean penin­sula and the Euro­pean debt cri­sis rep­re­sented a "win­dow of op­por­tu­nity" for the cen­tral bank to in­crease the in­ter­est rate.

"We ex­pected ear­lier that the BoT would in­crease the in­ter­est rate to a nor­mal level be­cause the econ­omy has re­turned to nor­malcy," he said.

Dr Su­pavud ex­pected the cen­tral bank's move to add ap­pre­ci­a­tion pres­sure to the baht, in­creas­ing the like­li­hood the cen­tral bank in­vokes a spe­cial mea­sure to stem cap­i­tal in­flows in the next year.

"A cap­i­tal con­trol is needed, given the need for fur­ther in­ter­est rate in­creases. I be­lieve the cen­tral bank will have a mea­sured re­sponse to the in­flows," he said.

Jun Trinidad, a Citibank an­a­lyst, ex­pected the move in Jan­uary. Citibank also ex­pects it to in­crease the one-day re­pur­chase in­ter­est rate to 2.25% by the end of March.

"The tim­ing has caught us off guard, given the slew of eco­nomic data show­ing be­nign in­fla­tion since Septem­ber, weak man­u­fac­tur­ing data and slow­ing im­ports. The pol­i­cy­mak­ers are a lot more hawk­ish on in­fla­tion by re­sum­ing in­ter­est rate nor­mal­i­sa­tion de­spite weak eco­nomic data," Mr Trinidad said. He said ap­pre­ci­at­ing pres­sure on the baht might lessen in 2011 if the US econ­omy im­proves. The US long-end yield has picked up and buoyed the dol­lar.

Mean­while Wel­lian Wi­ranto, an an­a­lyst at HSBC, said it agreed with the cen­tral bank's as­sess­ment of eco­nomic growth and in­fla­tion­ary pres­sure. "The in­ter­est rate in­crease is pru­dent pol­i­cy­mak­ing. The cen­tral bank might pause one more time be­fore rais­ing the rate again. Strong eco­nomic growth in Thai­land will be a pull fac­tor," Mr Wi­ranto said. -PB News

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