Thailand raises rates as inflation worries grow

BANGKOK, July 13, 2011 (AFP) - Thailand's central bank raised its key interest rate Wednesday for the fifth time this year, warning that the incoming government's populist policies were likely to fuel inflation.

The Bank of Thailand's Monetary Policy Committee voted unanimously to increase the cost of borrowing to 3.25 percent, up from 3.0 percent previously, at its first meeting since the opposition won a decisive election victory.

Puea Thai, the winning party of exiled former premier Thaksin Shinawatra, has outlined a raft of measures -- including an increase in the minimum wage and higher rice prices for farmers -- that are expected to stoke cost pressure.

The central bank's assistant governor Paiboon Kittisrikangwan said while he could not judge future government policy, raising wages would have an effect.

"The prospective increases in the minimum wage and fiscal spending amid continued economic growth will likely add to inflationary pressure and may result in heightened inflation expectations," he said.

Paiboon said the rate hike was "to maintain economic stability" in the face of continued inflation risks and robust domestic demand.

Official figures showed consumer price inflation slowed to 4.06 percent in the year to June, from 4.19 percent in May.

Thailand, which has more subdued inflation than many regional neighbours, raised its key interest rate in July 2010 for the first time in almost two years and has hiked it by a total of 200 basis points since then.

The Thai economy has rebounded strongly from political violence last April and May -- which caused investor uncertainty and hit the key tourism sector -- posting strong growth of 7.8 percent in 2010

Economic growth hit 2.0 percent quarter-on-quarter in the three months to March, the quickest pace in a year, helped by surging exports.

Analysts have said inflation worries are likely to spur the central bank to continue its rate rises, which could attract more foreign capital inflows, driving up the value of the baht and affecting the competitiveness of exports.

-- (c) Copyright AFP 2011-07-13

Good move IMO. Hope the central bank here can stay reasonably independent from political insanity. Unlike most of the rest of the world sadly.