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Central bank keeps policy rate unchanged

BANGKOK: -- The Monetary Policy Committee, the interest-rate setting authority of the Bank of Thailand, announced Wednesday that the benchmark rate will stay at 3.25 per cent per annum due to concerns over inflation during the first quarter of the year.

Bank of Thailand (BoT) Assistant Governor Duangmanee Vongpradhip said the committee's concerns over inflation overrides worry of possible short-term capital influx to cash in on the one per cent spread between Thai and US interest rates.

Announcing the decision following Wednesday's meeting, Ms Duangmanee said the committee made the decision because inflation had clearly accelerated and remained high due to the surge in global oil and commodity prices which effectively pushed up domestic prices.

The Committee however believes that inflation might taper off during the second half of the year in line with the global economic slowdown, she added.

At the end of March 2008, Thailand's real interest rate is minus 0.15, the lowest in the region, Ms Duangmanee said. Real rates in China and South Korea are 2.47 and 1.7 per cent respectively. On the basis of such a very low real interest rate, the assistant central bank governor said she saw no reason why speculators should target the Thai currency.

During the first two months of 2008, the Thai economy expanded in strength in both consumption and investment activities due to a more lenient monetary policy and fiscal stimulus measures. In any case, the economy remains vulnerable to domestic political variable that may undermine investor confidence, and the external risk of energy prices.

The committee, she said, has already consider the worst-case scenarios of the oil price hitting up to US$120 per barrel and the US economy contracting even further.

The Bank of Thailand plans to issue its forecast of inflation trends and economic outlook on April 22, she added.

Asked to comment on the rate decision, Santi Wilassakdanon, president of the Federation of Thai Industries (FTI) said close monitoring of the next move of the US Federal Reserve Board must be continued, as any decision by the Fed will influence the Monetary Policy Committee's decision on rates.

-- TNA 2008-04-10