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Quarter-point hike shouldn't hurt growth
PARISTA YUTHAMANOP
``Economic growth prospects remain uncertain,'' central bank assistant governor Duangmanee Vongpradhip says after yesterday's MPC meeting. |
The Bank of Thailand raised short-term interest rates by a quarter of a percentage point yesterday in the face of continued high inflationary pressure.
The Monetary Policy Committee's decision raises the benchmark one-day repurchase rate to 3.75%, and follows a similar increase on July 16.
Duangmanee Vongpradhip, an assistant central bank governor, said the declining oil price trend and strong export performance would help support growth in the second half of the year.
But oil prices, now trading at $114 per barrel compared with a high this year of $147, remain volatile and could turn upward again later this year.
The MPC noted that oil price declines and the government's anti-inflation programme would help ease inflationary pressure in the near future.
''However, given the elevated level of inflation and inflation expectations, as well as uncertainty of oil prices in the periods ahead, the MPC assessed that the risks to inflation remained an important issue of concern,'' the MPC said in its statement. ''The MPC deemed that this increase in the policy interest rate would bring domestic interest rates to the levels that would continue to support economic growth.''
Ms Duangmanee said the MPC was cautiously optimistic that a higher rate would not dampen economic growth.
''Economic growth prospects remain uncertain. We must take care not to let our move affect economic growth too much. We think the 25-basis-point increase could still support economic growth going forward,'' she said.
Analysts expect yesterday's increase to be the last under the current cycle. It comes following a tussle over policy with the Finance Ministry, which had argued for rates to remain unchanged to help support economic growth.
Finance Minister Surapong Suebwonglee yesterday said he accepted and understood the decision of the MPC.
He played down reports of conflicts with the central bank, saying that the bank's own growth forecast of 4.8% to 5.8% this year indicated its emphasis on maintaining growth.
Growth slowed to 5.3% in the second quarter from 6.1% year-on-year in the first, with first half growth averaging 5.7% from the same period last year. Economic growth last year was 4.8%.
Ms Duangmanee said preliminary central bank data showed that growth momentum remained healthy in July. But heightened political risk due to the standoff between the government and People's Alliance for Democracy protesters would have a psychological impact on consumers and investors.
In any case, the fact that 12-month deposit interest rates in real terms after inflation were -4.8% and real lending rates -2% in July would help support economic growth, Ms Duangmanee said.
''The government's six-month, six-point measures have helped reduce inflation to a certain level. But inflation could accelerate after that,'' she said. ''It is uncertain that oil prices will decline steadily. We expect oil prices to be volatile and affect inflation going forward.''
The anti-inflation package includes excise tax cuts for fuel, free bus and train rides for commuters and free water and electricity for small households.
Inflation rose to a 10-year high at 9.2% in July, up from 8.9% year-on-year the previous month, due largely to high food and fuel prices.
But lower oil prices should help push inflation downward in the next few months. The MPC cut its Dubai oil price estimate to an average of $112 a barrel this year from $120. It forecasts $120 next year, down from $135 earlier.
Investors mostly shrugged off the rate hike, with the SET index closing up 7.07 points at 675.99 in thin trade worth 9.2 billion baht. Analysts said gains mostly came from bargain-hunting following Tuesday's 1.37% slide, with short-term factors continued to be led by politics.
Bank stocks rose 1.9% yesterday on expectations that rates increase would help widen their margins.
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