Interest-rate hike looks likely amid inflation threat

BANGKOK: -- Despite the heightened political tension, an interest-rate hike looks likely when monetary authorities meet next Wednesday.

A Nation survey shows that at least two former governors of the Bank of Thailand (BOT) - MR Pridiyathorn Devakula and Chavalit Thanachanant - support a rate increase.

Their opinions are consistent with the central bank's current policy on inflation management.

Only Vijit Supinit, another former BOT governor, is opposed to a rate adjustment at this juncture, saying higher interest rates would brake economic momentum.

However, current BOT Governor Tarisa Watanagase believes there is a case to be made for tightening policy.

"A higher interest rate will cool consumer spending and help keep inflation expectations at bay," she said yesterday.

The Monetary Policy Committee is set to discuss rate policy next Wednesday.

Meanwhile, the University of the Thai Chamber of Commerce warns that political turmoil and spiralling oil prices will hold growth in this year's gross domestic product to below 5 per cent.

The university said trade was projected to hit a three-year record deficit of US$3.9 billion (Bt131 billion) this year, due to several unfavourable economic factors, compared with the surplus of $12 billion the Kingdom enjoyed last year.

The trade deficit will send the current-account surplus plunging from $14 billion last year to only $1.4 billion this year.

Exports are projected to slow 16.9 per cent to $178.2 billion this year, while imports will jump 30.1 per cent to $182.1 billion, based on a baht exchange rate of 33.60 to the US dollar.

-- The Nation 2008-07-09

One group is arrangeing for intrest free loans to educators, farmers etc, another encourgeing consumers to buy new electrial wigets, with govt support, another says support fuel cost to certain groups and this group says this intrest adjustment will cool consumer spending, thus inflation will be kept at bay. Since food and fuel are making a huge impact on inflation, I guess besides using less fuel, it will be recommended that everyone should subsist on one meal a day.

I can't see how this country is even functioning let alone growing at 4% ish a year. Couple what you said with the political incompetence and turmoil along with the worldwide problems in many areas, they have got to be on the way to another big slide surely?

This post has been edited by makavelithedon: 2008-07-09 10:08:21

Do these numbers add up?

BOT governor Tarisa must be using a new accounting system designed just for Thailand. Either that or the reporter/translator is having a bad day.

I am no finance Minister but isn't the high inflation that is cooling consumer spending, not the other way around? Perhaps he meant borrowing.