Thailand Raises Key Interest Rates, Curb Inflation

[george]

Thailand Raises Key Interest Rate to Curb Inflation

BANGKOK: -- Thailand's central bank raised its benchmark interest rate for the first time in three years to curb inflation and stem the baht's weakness.

The Bank of Thailand raised its 14-day bond repurchase rate by a quarter percentage point to 1.5 percent, Assistant Governor Atchana Waiquamdee said. The increase, the first since June 2001, matched economists' forecasts.

``It is a wise decision because it will reduce pressure on the baht,'' said Usara Wilaipich, an economist at Standard Chartered Bank in Bangkok. ``The weakening baht was increasing oil import costs.''

Thailand's consumer prices rose in July at their fastest pace in more than five years on higher prices for fuel, steel and other products. Millennium Steel Pcl, Thailand's biggest steel- rod maker, and other manufacturers are raising prices to pass on increasing production costs, taking advantage of demand for construction of new homes and other properties. Higher oil prices and a weakening baht also fueled inflation.

``Fuel prices and higher capacity use increased inflationary pressures,'' Atchana said. ``Rising fuel prices would increase risks to economic growth. The rate increase won't affect the baht.''

The baht fell 0.1 percent to 41.51 against the U.S. dollar at 4:01 p.m. in Bangkok. The SET index surged 1.4 percent to 608.29. Thailand's oil import bill rose 15 percent to $4.8 billion in the first six months of the year, PTT Pcl, Thailand's biggest energy company said.

Thai Banks

The Thai central bank had kept its benchmark rate at a record low of 1.25 percent since June 2003 to spur economic growth and consumer spending.

``Private investment and consumer spending are still very strong so the increase won't hurt growth,'' said central bank Governor Pridiyathorn Devakula. ``Inflation has accelerated so the increase,'' is an attempt to stem the gain.

Bank of Thailand may also raise the rate later this year should the U.S. Federal Reserve increase its key interest rate, Standard Chartered's Usara said.

The U.S. Federal Reserve raised its benchmark interest rate to 1.5 percent in two increases of half a percentage point since June 30. The baht has fallen 1.2 percent against the U.S. dollar in the past seven weeks.

The Thai central bank usually moves in step with the Federal Reserve in interest-rate decisions to avoid rate differentials from affecting the country's exchange rate and capital fund flows.

Thai banks won't raise interest rates yet because lenders ``still have excess money'' they can't lend, said Deja Tulananda, executive director at Bangkok Bank Pcl, Thailand's biggest lender.

Thai banks such as Bangkok Bank have as much as 500 billion baht ($12 billion) of money they are unable to lend, central bank Governor Pridiyathorn said in June.

--Bloomberg 2004-08-25