Thailand Raises Interest Rates For Second Straight Month

[webfact]

Thailand raises interest rates for second straight month

BANGKOK (AFP) -- Thailand raised its benchmark interest rate Wednesday for a second consecutive month after an unexpectedly strong performance by its economy in the face of deadly political unrest.

The Bank of Thailand increased its main lending rate by 25 basis points to 1.75 percent, following a quarter-point hike in July -- the first in almost two years.

"The Thai economy expanded faster than expected in the second quarter, despite decelerating somewhat from the first quarter due to (the) domestic political situation," said BoT assistant governor Paiboon Kittisrikangwan.

"Exports have been growing in tandem with global economic recovery, although the pace of growth is expected to slow down in the second half of the year," he said in a statement.

Official figures released on Monday showed that the Thai economy expanded by 9.1 percent in the second quarter of 2010 from a year earlier. For the six months through June, gross domestic product grew 10.6 percent.

The Thai economy has remained relatively resilient following two months of mass opposition protests, which paralysed parts of Bangkok and sparked violence that left 91 people dead, ending in a bloody army crackdown in May.

The better-than-expected second-quarter result was largely thanks to robust overseas demand for Thai-made goods, such as cars.

In July the Bank of Thailand upgraded its economic growth projection for 2010 to between 6.5 and 7.5 percent.

Before last month, the Bank of Thailand had held its benchmark rate steady for more than a year, after a series of cuts to shield the economy from the fallout of the global financial crisis. It last raised rates in August 2008.

-- (c) Copyright AFP 2010-08-25

[Thai at Heart]

How is raising interest rates going to have any tangible effect on exports? Are they saying they want the baht to appreciate more to make exports more expensive to reduce demand? And then they say, exports are supposed to slow down at the end of the year, so why increase interest rates?

Normally this is to combat inflation, of which there is NO mention at all in the article. There is NO mention at all of increased domestic demand fuelling inflation.

[webfact]

POLICY RATE

MPC raises rate by 25 bps

By The Nation

The Monetary Policy Committee today raised the policy rate by 25 basis points as expected, citing the renewed inflationary pressure.

The policy rate will immediately be raised to 1.75 per cent per annum.

Paiboon Kittisrikangwan, assistant governor of the Bank of Thailand, said that the MPC also anticipated higher inflationary pressure next year in light of economic expansion and higher manufacturing cost. The policy is raised as there is a chance that the core inflation could exceed the target. Meanwhile, the real interest also remains in the negative territory.

-- The Nation 2010-08-25

[inthepink]

How is raising interest rates going to have any tangible effect on exports? Are they saying they want the baht to appreciate more to make exports more expensive to reduce demand? And then they say, exports are supposed to slow down at the end of the year, so why increase interest rates?

Normally this is to combat inflation, of which there is NO mention at all in the article. There is NO mention at all of increased domestic demand fuelling inflation.

Where does it say in that article that they expect raising the interest rate to have a positive effect on exports?

Re. inflation:

BANGKOK, Aug 2 (Reuters) - Thailand's annual inflation rate edged up to 3.4 percent in July

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The central bank has a target range of 0.5 to 3.0 percent for core inflation -- which excludes volatile energy and fresh food prices -- and it sets policy to achieve that.

Edited August 25, 2010 by inthepink

[Thai at Heart]

How is raising interest rates going to have any tangible effect on exports?  Are they saying they want the baht to appreciate more to make exports more expensive to reduce demand?  And then they say, exports are supposed to slow down at the end of the year, so why increase interest rates?

Normally this is to combat inflation, of which there is NO mention at all in the article.  There is NO mention at all of increased domestic demand fuelling inflation.

Where does it say in that article that they expect raising the interest rate to have a positive effect on exports?

I didn't say positive. it is just that they mention extensive export growth and as such they put up interest rates. The next article states however, they fear that inflation may rise. Which makes much better sense when talking about interest rates INSIDE Thailand.

[inthepink]

I think they mentioned exports in the general context of the expanding economy, but anyway, it's not all that important (to me) 

[Thai at Heart]

I think they mentioned exports in the general context of the expanding economy, but anyway, it's not all that important (to me) 

Well, when the Baht goes through 30 to the USD or 45 to the GBP, wait for the howls on here.

It is relevant to me in terms of business and personally but the world and economic capital is moving very fast at the moment, and decisions today, will/can have very quick and sudden and lasting effects. They need to get these decisions correct.

USD through 30 and GBP through 45 (maybe even further) before Xmas I say.

[asiawatcher]

I doubt any raising of rates will affect anyone seriously in Thailand. Home owners basically will not be affected - not many have large mortgages - exports? Nope. But if the economy is expected to grow 7.5% then this is warranted to temper the growth.

[webfact]

Policy interest rate likely to rise to 2% by year-end: KRC

BANGKOK: -- The policy interest rate is projected to increase further by a quarter point to 2 per cent by the end of this year amid economic risk factors, according to Kasikorn Research Center.

The leading think tank said it believed many agencies including the Bank of Thailand, the Finance Ministry, and the National Economic and Social Development Board would raise their economic growth projections for this year.

The Monetary Policy Committee would give more weight to supervising core inflationary pressures which it sees as overtaking the inflation-targeting framework of 0.5-3 per cent next year.

KRC believed the policy interest rate hike would neither impact the baht nor fuel a foreign capital inflow. Also, the policy rate is expected to increase gradually and carefully.

It said the MPC’s decision on the policy rate at its meetings in the rest of 2010 might take into account other factors than the core inflation rate hike, particularly the direction of the economy in the second half of this year which might grow at a slower pace in tandem with the expected global economic slowdown.

In addition, the MPC would have to keep a watch on higher prices of various products in the last quarter of this year, the strengthening of baht, and the downward global economic trend.

With these factors, KRC said, fuel and commodity prices and inflationary pressure would not accelerate in the remaining period of this year. (MCOT online news)

-- TNA 2010-08-26