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Thailand lifts rates again to curb inflation

BANGKOK, April 20, 2011 (AFP) - Thailand's central bank raised its official interest rate Wednesday for the sixth time in less than a year in an attempt to contain inflation.

The Monetary Policy Committee (MPC) voted six to one to increase the official cost of borrowing to 2.75 percent, up from 2.50 percent previously, and said in a statement it was ready to take further action if needed.

The central Bank of Thailand has lifted its key rate by a total of 150 basis points since July 2010.

The latest move came just hours after official figures showed exports jumped almost 31 percent in March from a year earlier, hitting an all-time high in a boost to the economy's recovery from a soft patch in mid-2010.

"The Thai economy continued to expand well in the first quarter, supported by internal and external demand," the bank's assistant governor Paiboon Kittisrikangwan said in a statement.

A slowdown in the production and export of automobiles and electronics was expected as a result of Japan's devastating earthquake and tsunami, but at the same time the impact of the flood in southern Thailand was limited, he said.

"Going forward, the Thai economy is expected to maintain its growth momentum," Paiboon predicted.

Stubbornly high oil and commodity prices, coupled with the gradual end of official measures to control prices, would add to inflationary pressures, he said.

Thailand's consumer price inflation accelerated to 3.14 percent in March, from 2.87 percent in February, the government reported earlier this month.

The Commerce Ministry said Wednesday that the value of Thai exports surged to $21.3 billion in March, up from $16.2 billion in the same month of 2010, helped by strong overseas demand for products such as rice and rubber.

The strong performance eased worries that Thai exports would suffer from the impact of the March 11 quake-tsunami in Japan.

Thailand posted a March trade surplus of $1.8 billion, slightly higher than the previous month.

The Thai economy returned to growth in the fourth quarter of 2010, snapping out of a brief technical recession on the back of solid exports and private consumption.

-- (c) Copyright AFP 2011-04-20

[12DrinkMore]

If you have western assets earning little interest, and see a long term future in Thailand/Asia maybe it is now time to move assets to Asia?

For me, looking at the major issues in the western world and seeing the figures coming out of Asia this is now a no-brainer. Where is the US and Europe heading? What are their plans for their currencies. Look at Geithner's lips.

A continued devaluation of the USD is certainly on the cards, so unless you want to bet against Bernanke and Geithner; and also the UK GBP, where the schoolboys are clueless and Merv is following the US, move money to Asia. And I also include Australia in that bet. Maybe the major move has taken place, but Aussieland will give you 6% on a deposit, backed up by commodities and a vibrant economy.

Just maybe a head's up, what the <deleted> is going on here?

[F4UCorsair]

I see that the stupid, stupid 'basis points' and 'percentage points' terms have made their way to Thailand. What's wrong with 1 point 5 percent (1.5%). Ridiculous jargon does nothing other than to illustrate that those using it are clowns, lacking education or vocabulary, or perhaps both, who do no more than follow the leader.

[samran]

I see that the stupid, stupid 'basis points' and 'percentage points' terms have made their way to Thailand. What's wrong with 1 point 5 percent (1.5%). Ridiculous jargon does nothing other than to illustrate that those using it are clowns, lacking education or vocabulary, or perhaps both, who do no more than follow the leader.

Consistency I guess.

If interest rates were previously 1.0% and they raised them by one point five percent as you say, then the final interest rate could be implied to mean 1.0015% I guess.

Saying they went up 150 basis point means it is clear to everyone.

[F4UCorsair]

I see that the stupid, stupid 'basis points' and 'percentage points' terms have made their way to Thailand. What's wrong with 1 point 5 percent (1.5%). Ridiculous jargon does nothing other than to illustrate that those using it are clowns, lacking education or vocabulary, or perhaps both, who do no more than follow the leader.

Consistency I guess.

If interest rates were previously 1.0% and they raised them by one point five percent as you say, then the final interest rate could be implied to mean 1.0015% I guess.

Saying they went up 150 basis point means it is clear to everyone.

A 1.5% increase ON 1% could NEVER be 1.0015%. NEVER! It could only ever be 2.5%. A 1.5% increase OF 1% could be 1.0015%

If they were consistent, 150 basis points would/should be 1.5 percentage points.

One point (1 pt) is generally regarded as 1%, so therefore a percentage point could be seen to be .1% and that's where the confusion comes in.

Some dumb prick in finance thought he'd invent a new term, and people thrive on cliches, the idiots do anyway. The only way there would not be confusion is to expres percentages as whole numbers and points of whole numbers.

Maybe it's just me because I hate cliches. As I said in my earlier post, cliches are indicative of those without a vocabulary, an education, or both.

[NaiGreg]

I see that the stupid, stupid 'basis points' and 'percentage points' terms have made their way to Thailand. What's wrong with 1 point 5 percent (1.5%). Ridiculous jargon does nothing other than to illustrate that those using it are clowns, lacking education or vocabulary, or perhaps both, who do no more than follow the leader.

Consistency I guess.

If interest rates were previously 1.0% and they raised them by one point five percent as you say, then the final interest rate could be implied to mean 1.0015% I guess.

Saying they went up 150 basis point means it is clear to everyone.

A 1.5% increase ON 1% could NEVER be 1.0015%. NEVER! It could only ever be 2.5%. A 1.5% increase OF 1% could be 1.0015%

If they were consistent, 150 basis points would/should be 1.5 percentage points.

One point (1 pt) is generally regarded as 1%, so therefore a percentage point could be seen to be .1% and that's where the confusion comes in.

Some dumb prick in finance thought he'd invent a new term, and people thrive on cliches, the idiots do anyway. The only way there would not be confusion is to expres percentages as whole numbers and points of whole numbers.

Maybe it's just me because I hate cliches. As I said in my earlier post, cliches are indicative of those without a vocabulary, an education, or both.

[gregb]

This just boggles my mind. Truly. The cost of everything is going up because the cost of energy is rising. So, according to the great thinkers at the top of the economic food chain, the solution to this is to increase my mortgage rates so I have to pay more for shelter in addition to food and transport.

Somehow, I think their solution is worse than the problem. Interests rate can not curb cost push inflation. The only way to do that is to lower the price of oil globally. They are using an outdated playbook and hoping it solves a completely different problem.

We don't need an increase in interest rates. That will only add fuel to the fire, as everyone tries to increase their incomes to pay for the suddenly higher cost of credit. We need lower energy prices. Interest rates can't help with that.

[Naam]

I see that the stupid, stupid 'basis points' and 'percentage points' terms have made their way to Thailand. What's wrong with 1 point 5 percent (1.5%). Ridiculous jargon does nothing other than to illustrate that those using it are clowns, lacking education or vocabulary, or perhaps both, who do no more than follow the leader.

years ago my blood pressure went through the roof when i listened to nonsense on American TV such as "interest rates were hiked one fourth of one percentage point that's why the DOW fell three tenth of one percentage point".

now i just smile

[Naam]

This just boggles my mind. Truly. The cost of everything is going up because the cost of energy is rising. So, according to the great thinkers at the top of the economic food chain, the solution to this is to increase my mortgage rates so I have to pay more for shelter in addition to food and transport.

Somehow, I think their solution is worse than the problem. Interests rate can not curb cost push inflation. The only way to do that is to lower the price of oil globally. They are using an outdated playbook and hoping it solves a completely different problem.

We don't need an increase in interest rates. That will only add fuel to the fire, as everyone tries to increase their incomes to pay for the suddenly higher cost of credit. We need lower energy prices. Interest rates can't help with that.

why not asking the Bank of Thailand to reduce prices of Brent, West Texas Intermediate, Bonny Light, Saharan Blend, Arab Light, Nymex Crude...? perhaps those responsible will listen to your suggestions?

[ExpatJ]

If you have western assets earning little interest, and see a long term future in Thailand/Asia maybe it is now time to move assets to Asia?

For me, looking at the major issues in the western world and seeing the figures coming out of Asia this is now a no-brainer. Where is the US and Europe heading? What are their plans for their currencies. Look at Geithner's lips.

A continued devaluation of the USD is certainly on the cards, so unless you want to bet against Bernanke and Geithner; and also the UK GBP, where the schoolboys are clueless and Merv is following the US, move money to Asia. And I also include Australia in that bet. Maybe the major move has taken place, but Aussieland will give you 6% on a deposit, backed up by commodities and a vibrant economy.

Just maybe a head's up, what the <deleted> is going on here?

Yes, i have moved much of my US$ into Thai baht/ indo rp over the last year..

On australia- i have read some 'under the radar' news reports in the last weeks talking about an upcoming housing crisis -the same thing that happened in the US and UK housing markets now seems to be slowly unfolding in Australia (much delayed comared to US/UK)..if this is correct it could mean severe problems for the Australian economy in the coming months year or so...check out google news and 'australian house prices' so some similar searches.

[gregb]

This just boggles my mind. Truly. The cost of everything is going up because the cost of energy is rising. So, according to the great thinkers at the top of the economic food chain, the solution to this is to increase my mortgage rates so I have to pay more for shelter in addition to food and transport.

Somehow, I think their solution is worse than the problem. Interests rate can not curb cost push inflation. The only way to do that is to lower the price of oil globally. They are using an outdated playbook and hoping it solves a completely different problem.

We don't need an increase in interest rates. That will only add fuel to the fire, as everyone tries to increase their incomes to pay for the suddenly higher cost of credit. We need lower energy prices. Interest rates can't help with that.

why not asking the Bank of Thailand to reduce prices of Brent, West Texas Intermediate, Bonny Light, Saharan Blend, Arab Light, Nymex Crude...? perhaps those responsible will listen to your suggestions?

You missed what I was trying to say. They can't do anything about the real problem, so better that they simply do nothing. Raising interest rates in Thailand will 1) not fix the problem, 2) do nothing to curb energy use by the Chinese and other foreign economies, 3) punish the people of Thailand, who will likely raise prices even further to cover the increased cost of credit.

Raising interest rates MIGHT help the problem if they also let the currency appreciate dramatically against foreign currencies to bring down effective energy costs, but they won't let that happen either because they are afraid of losing export competitiveness. So we are at a point where the action they are taking will simply exacerbate the problem they are trying to fix.

The answer is not to raise rates, and thereby minimize the inflation by helping people to more easily repay their debts. They can use other tools to limit credit access if they want to shrink the money supply. Increasing the fractional reserve ratio and restricting funds available for lending by the central bank would accomplish the same thing without hurting the people. When inflation is driven by oil prices, it can't be managed. There will be inflation unless the master plan is to impoverish the country to the point where demand decreases due to starvation, all exports are prohibited, and the remaining capital is concentrated in the hands of the largest and wealthiest suppliers. That is the only scenario where this decision makes sense.

[12DrinkMore]

Yes, i have moved much of my US$ into Thai baht/ indo rp over the last year..

On australia- i have read some 'under the radar' news reports in the last weeks talking about an upcoming housing crisis -the same thing that happened in the US and UK housing markets now seems to be slowly unfolding in Australia (much delayed comared to US/UK)..if this is correct it could mean severe problems for the Australian economy in the coming months year or so...check out google news and 'australian house prices' so some similar searches.

The Aussie-Housing-Bubble has been the subject of attention for a couple of years. In some areas it has already popped leaving those "we're getting rich property debtors" sitting with negative equity.

I may be wrong, but I think the reason why the UK and Aussieland are not seeing the same massive drops in property values that the US is going through is due to the non-recourse loans that the US dishes out. The Yanks can simply walk away from their property debt, dumping it on Freddy and Fanny. In the UK and Aussieland you cannot do this, the banks would chase you through the courts for the outstanding debt. Keeping the peeps are much more "motivated" to continue with the debt repayments. This is arguably good for the economy, as it provides an army of worried debt-slaves with their noses firmly on the grind-wheel...

[Naam]

You missed what I was trying to say. They can't do anything about the real problem, so better that they simply do nothing. Raising interest rates in Thailand will 1) not fix the problem, 2) do nothing to curb energy use by the Chinese and other foreign economies, 3) punish the people of Thailand, who will likely raise prices even further to cover the increased cost of credit.

and you miss that others, and that includes the Bank of Thailand, are neither interested nor can they solve what you think is the real problem. i agree that the few hikes until now have not fixed Thailand's inflation problem for the simple reason that market rates still seem to be way below inflation rate. killing inflation is only possible with interest rates which are higher than prevailing inflation. that's what worked in the past 60 years in most countries (exceptions prove the rule) and that is what will work in the future. initial suffering for the majority of citizens is unavoidable because there's a time gap till higher interest rates can bring inflation down.

[12DrinkMore]

Raising interest rates MIGHT help the problem if they also let the currency appreciate dramatically against foreign currencies to bring down effective energy costs, but they won't let that happen either because they are afraid of losing export competitiveness. So we are at a point where the action they are taking will simply exacerbate the problem they are trying to fix.

The answer is not to raise rates, and thereby minimize the inflation by helping people to more easily repay their debts. They can use other tools to limit credit access if they want to shrink the money supply. Increasing the fractional reserve ratio and restricting funds available for lending by the central bank would accomplish the same thing without hurting the people. When inflation is driven by oil prices, it can't be managed. There will be inflation unless the master plan is to impoverish the country to the point where demand decreases due to starvation, all exports are prohibited, and the remaining capital is concentrated in the hands of the largest and wealthiest suppliers. That is the only scenario where this decision makes sense.

Help is at hand, just popped up on Bloomberg

http://www.bloomberg.com/news/2011-04-22/bank-of-thailand-willing-to-let-baht-gain-to-stem-inflation-atchana-says.html

The Bank of Thailand is willing to let the baht appreciate to help contain inflation, and only plans to intervene if the currency rises at a faster pace than its regional peers, Deputy Governor Atchana Waiquamdee signaled.The baht has advanced 7.7 percent in the past year against the dollar, the third-best performance among Asia’s 10 major currencies excluding the yen, as overseas investors purchased shares and government bonds to benefit from economic expansion. It pared earlier losses after Atchana’s remarks today.

“A strong baht helps decrease inflation, especially imported inflation,” Atchana said in an interview at her office in Bangkok. “We didn’t resist the trend” of Asian currency appreciation, she said.

“If your currency appreciates, I don’t see any reason why we have to resist that because it helps to reduce the inflation rate of countries in the region,” Atchana said. “We will not lose competitiveness because of the exchange rate.”

Blimey, a voice of reason and logic.

As regards the use of the interest rate to somehow manipulate the inflation rate, I am simply at a loss to explain exactly how this is supposed to work. I know the standard theory behind it, that if credit is more expensive then there will be less money chasing goods, which will then somehow not inflate as much. But the world is far more complex and inter-related for that simple idea to function in a clear and unequivocal way. There are too many other parameters in the equation. For example the UK slashed interest rates to zero, causing the GBP to collapse 30%, but still the CPI and GDP chugged along at a couple of percent growth. To me the idea that if the BoE raises rates by 0.25% after agonising over it for two days then this, in itself, will "fine tune the inflation" is utter bullshit. I think it is far more to do with the "message" and massaging the expectations of the peeps, than any real direct effect.

[gregb]

You missed what I was trying to say. They can't do anything about the real problem, so better that they simply do nothing. Raising interest rates in Thailand will 1) not fix the problem, 2) do nothing to curb energy use by the Chinese and other foreign economies, 3) punish the people of Thailand, who will likely raise prices even further to cover the increased cost of credit.

and you miss that others, and that includes the Bank of Thailand, are neither interested nor can they solve what you think is the real problem. i agree that the few hikes until now have not fixed Thailand's inflation problem for the simple reason that market rates still seem to be way below inflation rate. killing inflation is only possible with interest rates which are higher than prevailing inflation. that's what worked in the past 60 years in most countries (exceptions prove the rule) and that is what will work in the future. initial suffering for the majority of citizens is unavoidable because there's a time gap till higher interest rates can bring inflation down.

I just disagree with you completely on this Naam. It is anachronistic thinking. Conventional for sure, but wrong in this case.

I don't "miss" the fact that the real problem can't be fixed. Which is why I keep saying they are powerless to do anything. They should do nothing, because anything they do is wrong. Nothing will help. They won't let the currency appreciate as high as necessary. They may let it rise slowly, as long as it is not at a rate "faster than its peers". I have no confidence when I hear statements like this. That is code for "we're going to work with our neighbors to make sure we all keep our currencies depressed." Certainly that is what has been going on up until now. I don't see them saying, "we support a strong THB policy, and will let the currency appreciate as much as the market will bear".The optimum solution in this case is accept the inevitable inflation that is coming.

The only reasonable course of action is to do nothing at all and let the entire system collapse. The existing system demands cheap energy for economic growth. The era of cheap energy is over, and the era of economic growth is over. Raising the interest rates at this point only harms the people. Inflation can not be stopped. They are fools for trying, and their action will only make a bad situation worse.

[flying]

If you have western assets earning little interest, and see a long term future in Thailand/Asia maybe it is now time to move assets to Asia?

Or gold & silver

Actually I have been also moving small amounts of cash to THB for the future.

Edited April 23, 2011 by flying

[Naam]

The only reasonable course of action is to do nothing at all and let the entire system collapse. The existing system demands cheap energy for economic growth. The era of cheap energy is over, and the era of economic growth is over.

repeating a theory over and over again does not necessarily make it come true. correct is that energy is not as cheap anymore as it used to be. but it is still affordable and even at present cost there is satisfactory economic growth in most countries. if the "entire system" collapses then this is caused by a bunch of other factors, one of them the unserviceable debt of a number of countries. but even the latter can be avoided by monetising the debt... unfortunately most of the brunt will be have to be borne by the majority of poor people in those countries.

[rafish]

The only reasonable course of action is to do nothing at all and let the entire system collapse. The existing system demands cheap energy for economic growth. The era of cheap energy is over, and the era of economic growth is over.

repeating a theory over and over again does not necessarily make it come true. correct is that energy is not as cheap anymore as it used to be. but it is still affordable and even at present cost there is satisfactory economic growth in most countries. if the "entire system" collapses then this is caused by a bunch of other factors, one of them the unserviceable debt of a number of countries. but even the latter can be avoided by monetising the debt... unfortunately most of the brunt will be have to be borne by the majority of poor people in those countries.

I suspect that Thailand like many other Asia nations are tagging along with the Chinese Yuan. I have watched the trend wherein the exchange rate of the yuan grows stronger the Asian or Thai in this case makes a run at keeping up. A strong baht makes no sense in todays economy where the BOT can increase interest rates on loans, but at the same time increase the value of the baht. Fighting inflation by increased value of the baht does not stop or slow inflation, but rather increases it. The cost for goods and services goes up on every occasion of rising interest rates. When you paid 40 baht for a kilo of mango's the price was regulated by the market place. Now the cost of the same kilo of mango's is 60 to 80 baht per kilo. Raising interst rates did not stop inflation nor did the rise in the valuation of the baht. What you paid for a car in 2005 has risen 25% since then. The market for goods and services has not risen IMO, but has decreased due to those risies in interest rates and over appreciation of the baht, (which I call artificial value.) In today's market the inflation is greed driven not market driven IMO.

Ask yourself, how can an economy grow with 5 years of political unrest, border clashes, massive unrest in the three major southern states, recent flooding, droughts in Issan, lower tourist ratio's, high oil resources costs, Middle East unrest and revolution, and world economic failures?

The current economic positives preached by the Abhisit government is pure and simple snake oil. the economy is a failure and is failing now as we discuss these ideas. the building bubble is huge, the personal loans by Thais for all forms of goods and services are failing and in the end the bubble will IMO burst as will it in Hong Kong and China. the control of the media, the banking and the people in these countries is the only thing keeping them afloat right now. I would not be to fast in changing my currency to baht or Yuan or Aussie dollars. "What goes up, must come down."

[Naam]

I suspect that Thailand like many other Asia nations are tagging along with the Chinese Yuan. I have watched the trend wherein the exchange rate of the yuan grows stronger the Asian or Thai in this case makes a run at keeping up.

that makes me wonder what trend you watched. since 2005 THB, SGD, JP¥, KRW, TWD, MYR have gained considerably vs. USD, EUR and GBP and since early 2007 they are all stronger vs. CNY (Yuan). i can't see neither "tagging along" nor "making a run".

[rafish]

I suspect that Thailand like many other Asia nations are tagging along with the Chinese Yuan. I have watched the trend wherein the exchange rate of the yuan grows stronger the Asian or Thai in this case makes a run at keeping up.

that makes me wonder what trend you watched. since 2005 THB, SGD, JP¥, KRW, TWD, MYR have gained considerably vs. USD, EUR and GBP and since early 2007 they are all stronger vs. CNY (Yuan). i can't see neither "tagging along" nor "making a run".

The yuan was undervalued during those times as stated by numerous world currencies. The monumental growth in dollars, pounds and Euros by China precipitated the rise of the other Asian currencies as pegged on the debt build up by China against foreign traders. All Asian currencies jumped on this bandwagon and commenced their appreciation of their currencies against the strong Yuan even when undervalued. Check the GDP of these small Asian countries when compared to say Germany or Switzerland? How can a country with less than 1/5 of the GDP have or retain a currency equal to that of Germany or greater than France? America is the buyer for a significant amount of Asian exports. A strong currency against a dollar is advantageorus to those who in reality are building up huge sums in the dollar, euro, and Pound. Not baht. Oz has become the market place for Asia and its strong commodities markets are sustaining their economy quite well. While rice farmers are producing more rice in Thailand, the fixed rate per ton has decreased not increased. On the market shelves that same rice is being hawked at three to four times its selling rate by those farmers. All Thai commodities are the same and treated the same by the government managed agriculture ministry. Remember we live in a country that sets the day rate as often as the sun shines. None dare challenge the authority there in vested. As for thsoe other currencies and countries you mention all have their ruling elite and control over the market place and its providers. Remind you that these are not "free," markets. As for those stock markets one can only guess at the stability of those countries, their companies and the choice of price verses actual value. Asian exchanges have and always will be no more than "casinos." China last week reports a open inside traders operation on most of their exchange. Warren Buffet looked, and backed away. I dare say anyone with a right mind would do likewise. BTW, not even Vietnam wants baht.

[Naam]

why don't you refer to the facts i presented instead of writing a paper which has no bearing on these facts?

[rafish]

why don't you refer to the facts i presented instead of writing a paper which has no bearing on these facts?

Perhaps you only want to read agreements?

[Naam]

why don't you refer to the facts i presented instead of writing a paper which has no bearing on these facts?

Perhaps you only want to read agreements?

facts (as opposed to theories) do not require agreements. that i posted facts can be easily verified by checking historical exchange rates via accessing numerous internet sites which provide detailed evidence if required.

summary: there was neither a "tagging along" nor "making a run". period!