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BOT hints at normalised policy rate

Seetalavajit Sabayjai

The Nation

Move hinges on economic stabilisation

BANGKOK: -- The Bank of Thailand signalled a normalisation of the policy rate if the economy resumes its normal level, while raising its 2012 growth forecast to 6 per cent.

"But we need to consider the trends of the Thai economy for a while - how much it will be affected by external factors and whether there will be further influences," said Assistant Governor Paiboon Kittisrikangwan.

He noted that the real benchmark interest rate was still negative, as the policy rate is lower than the inflation rate. The central bank kept the policy rate unchanged at 3.00 per cent in the last two Monetary Policy Committee meetings.

The International Monetary Fund yesterday said that when the Thai economy returned to its normal level, there would be no need for further stimulus, he added.

Given last year's very low base and quicker-than-expected economic recovery after the floods, the BOT yesterday raised its forecast for this year's growth in gross domestic product to 6 per cent from the earlier estimate of 5.7 per cent.

"We revised upwards our growth estimate largely because of the lower-than-expected base in 2011 and faster-than-expected recovery of industries," Paiboon said.

Inflation risks are the main threats to growth, driven by higher production costs, particularly wages and oil, and more pass-through of costs to prices of goods and services during the recovery of domestic consumption, he noted.

This year's estimate for headline inflation was increased slightly to 3.5 per cent from the previous projection of 3.4 per cent. This year's average Dubai crude-oil price is estimated at US$115.30 per barrel, up from $103.30 estimated in January.

Core inflation, which excludes fresh food and fuel, is predicted at 2.5 per cent this year, up from the previous estimate of 2.4 per cent.

"Inflation figures should be watched but there is no need to be worried," Paiboon said.

Current threats to growth have declined slightly, mainly because of the domestic economic recovery and greater global economic stability from an improving US economy and less risk from the euro-zone debt crisis.

BOT's Economic Forecast (May 2012)

2012 / 2013 (%)

GDP: 6.0 / 5.8

Private consumption: 5.7 / 4.5

Private investment: 14.3 / 10.6

Public consumption: 4.9 / 2.2

Public investment: 17.9 / 17.7

Exports (value): 9.2 / 14.6

Imports (value): 17.0 / 12.4

Source: Bank of Thailand

-- The Nation 2012-05-12