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[churchill]

Says says core inflation may exceed target if no rate rise

* 2010 GDP seen +3.3-5.3 pct, unchanged from previously

* 2010 exports seen up 18.5-21.5 pct vs 13-16 pct previously (Adds details, quotes)

By Orathai Sriring and Kitiphong Thaichareon

BANGKOK, Jan 22 (Reuters) - Thailand's central bank on Friday hinted at a possible tightening in monetary policy, saying core inflation could rise above its target range if there was no rise in interest rates this year.

The comment by the Bank of Thailand's assistant governor underlines rising concern over inflationary pressures across Southeast Asia as its export-driven economies rebound at a time when aggressive government spending measures are kicking in.

"There is room and a risk that core inflation in the second half may overshoot the upper ceiling of the inflation target range if there are no policy rate hikes throughout the year," said Bank of Thailand Assistant Governor Paiboon Kittisrikangwan.

Economists said the comment reinforced the consensus for an interest rate rise in the third quarter of this year, pushing up five-year benchmark bond TH5YT=RR yields three basis points. The Thai baht THB= was little changed at 32.97 per dollar.

http://in.reuters.com/article/specialEvent...0100122?sp=true

Paiboon was speaking at a news conference where the central bank stuck to its forecast of 3.3-5.3 percent economic growth this year, surprising some who had expected a lower forecast.

"This shows the central bank's view on the economy is quite positive," said Pimonwan Mahujchariyawong, an economist at Kasikorn Research Center in Bangkok. "From that comment and the view on inflation this year, it's quite clear that the central bank is concerned about inflationary pressure."

The central bank's core inflation target, which guides its rate policy, is 0.5 to 3.0 percent and its forecast for average core inflation in 2010 is well within that at 1.3 to 2.3 percent. Average headline inflation is expected at 3.0-5.0 percent.

REGIONAL REBOUND

Thailand, Indonesia, Malaysia and Taiwan likely to be the last to raise rates in emerging Asia as they are seen on hold until the third quarter, a Reuters poll showed MKTPOLL1.

Other Asian central banks are also likely to raise interest rates by September as growth and inflation are picking up.

Thailand's central bank has kept its benchmark rate steady at a record low 1.25 percent since April after cuts totalling 250 basis points from December 2008 to lift Thailand's $260 billion economy -- Southeast Asia's second-biggest -- out of recession. Its next rate review is on March 10.

The government also launched an aggressive $43 billion, three-year spending programme to spur the economy.

Annual consumer price inflation jumped to 3.5 percent in December from 1.9 percent in November. However, core inflation -- which excludes energy and fresh food -- was just 0.2 percent in December from a year before.

Paiboon said any decision to raise rates later this year would be made only if core inflation breached its target range or if current low Thai rates and large excess money supply posed the risk of an asset price bubble.

"There is a greater chance for interest rates to return to normalised levels. Although we could not say when that will happen, the private sector should be prepared for it," he said.

Other regional economies are rebounding, but most economists polled by Reuters expect Thailand to grow the least in Southeast Asia, along with the Philippines, at 4.0 percent in 2010. Indonesia, for example, is expected to expand 5.7 percent, Malaysia 4.9 percent and Singapore 6.0 percent.

The central bank's projection for economic growth is more bullish than the finance ministry's prediction for a 3.0-3.5 percent expansion. The World Bank expects 3.5 percent.

Asian countries that rely on exports are also seeing improving trade as global demand recovers. Singapore's non-oil exports in December rose 26.1 percent from a year before while Taiwan's annual exports surged nearly 47 percent in December.

The Bank of Thailand forecast Thai exports would rise by 18.5-21.5 percent this year, up from the 13.0-16.0 percent seen earlier. It expects imports to rise 31.5-34.5 percent this year while the current account surplus is seen at $8.0-11.0 billion. ($1=32.98 Baht

[12DrinkMore]

Well, IMO the rate of inflation in Thailand is above the 3% they are claiming, although why there should be a "headline" inflation and a "core inflation" is beyond me. Although I might be experiencing more inflation because the local greedy landowners are cranking up both commercial and housing rents at a ridiculous and very selfish rate, also the cost of buying food in the local markets is creeping up year on year.

And then there is the insidious inflation in restaurants and noodle stands, where the amount of meat in the dishes diminishes until they put up the price by 5 Baht, or around 25% and then, for a while there is a bit more meat, but this is then slowly reduced.

On the other hand wages are being held low due to the large number of available workers.

And why do the Thai banks consider that the interest rates paid to depositors should be next to zero? There is absolutely no encouragement for people to save, as inflation is eating into savings at a huge rate. At the moment in ten years any savings will have lost some 30% of buying power.

[Jonathanpattaya]

A rate hike will very likely strenthen an already strong Baht.