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Central bank tipped to leave policy interest rate unchanged

THE NATION

The Bank of Thailand's Monetary Policy Committee is widely expected to maintain the policy rate at its meeting on Wednesday.

BANGKOK: -- "All the worries like the fiscal cliff have been tackled faster than expected. Although the fiscal cliff fear is not yet entirely over, |as the debt ceiling remains to be discussed, this should not be as worrisome. Risks are easing as there are measures to alleviate spending cuts and extend tax deductions," Benjarong Suwannakhiri, head of TMB Analytics, said last week.

The US economy shows clearer signs of recovery, especially in manufacturing and real estate. China also staged a recovery while the situation in the eurozone remains unchanged.

There is a chance that the policy rate would be raised at least once in the second half, if inflation heats up.

While global economic uncertainties still pressure economic activities in Thailand, which may need a monetary boost, domestic inflation could rise on factors such as a spike in investment as well as the minimum wage hike.

In December, headline inflation surged by 3.63 per cent on year, up from 2.74 per cent in the previous month, against the market consensus of 3.2 per cent. Core inflation, which excludes volatile fresh food and energy prices, weakened to 1.78 per cent from 1.85 per cent in November.

Fruit and vegetable prices in the month went up by 3.68 per cent from November and 16.79 per cent from the same month last year. This pushed up the food and drink price index, which constitutes 33 per cent of the inflation basket, by 4 per cent on year. The drought in the North and Northeast could also worsen planting conditions and make vegetables more expensive.

Nomura Research said activity data for November surprised by being significantly on the upside, pointing to an substantial upside to its 2012 GDP growth forecast of 5.5 per cent.

"These data remain supportive of our view that the Bank of Thailand will keep the policy rate unchanged at 2.75 per cent in the meeting on January 9 and indeed throughout 2013," it said.

Tisco Securities expects headline inflation to rise by 3.3 per cent while core inflation will fall to 1.6 per cent - well within the Commerce Ministry's target range of 2.8-3.4 per cent.

This would help give room to the authorities to maintain the policy rate.

"The risk to economic growth is easing on the back of the recovery of Thai and overseas economies. The US Congress' action to delay the fiscal cliff has also resulted in a psychological improvement in the global investment situation."

Expecting the MPC to maintain the policy rate at this meeting, Usara Wilaipich, senior economist at Standard Chartered Bank (Thai), is convinced that the Bank of Thailand would remain biased towards economic growth.

"Despite a positive move concerning the fiscal cliff, this is just the first step to completely escape the cliff. The situation in Europe remains unchanged, without much progress. Risks still persist and I believe the central bank would rather pause," she said.

Kampol Adireksombat, senior economist of Tisco Securities, says that while external factors have become less worrisome, the domestic economy also strengthened from last year.

"The policy rate should be kept unchanged in the first half of this year, but it could be raised twice in the latter half to 3.25 per cent. This will be boosted by government spending, which will drive domestic demand. Food prices also tend to rise due to the drought forecast," he said.

-- The Nation 2013-01-07