Real deposit interest rates nudged positive territory last month and are likely to stay there this month as more commercial banks hike their interest rates, according to the central bank.

Real deposit rates almost reached positive territory last month despite the rate of inflation reaching 6 per cent.

The 12-month deposit rate last month stood at a thin -0.06 per cent, a huge improvement from the -0.66 per cent in March, according to the Bank of Thailand's most recent monthly report.

The improvement was the result of increases in deposit and lending rates in April and falling inflationary pressure seen over the next 12 months, said a source from the BOT.

The real rate could move into positive territory this month if banks raise their deposit rates by another quarter of a percentage point or the expected rate of inflation over the next 12 months drops further, said the source.

"Although headline inflation was 6 per cent in April, it is expected to gradually decline. This will result in a positive real rate by the middle of the year," he said.

The real deposit rate is calculated from the nominal 12-month deposit rate average offered by the four largest commercial banks, minus the predicted rate of inflation over the next 12 months.

The real rate, however, does not include the 15 per cent withholding tax on interest returns.

The central bank forecasts headline inflation to be between 4 and 5 per cent this year.

Earlier, BOT governor MR Pridiyathorn Devakula said he wanted the real deposit rate to enter positive territory by the middle of the year. This, he said, was supported by increases in the central bank's key policy rate.

The source, however, said the real deposit rate was not the only factor influencing policy rate movement.

The Monetary Policy Committee must evaluate other economic factors including economic growth and inflation, he said.

In addition, the real minimum lending rate (MLR) last month stood at 3.42 per cent, up from 2.9 per cent in March.

The central bank's real rate takes the forecast rate of inflation into account when calculating the MLR, not the current inflation rate.

Pridiyathorn said headline inflation last month was higher than expected due to continued rises in the price of oil. However, he warned consumers not to overreact to the one-month figure.

"I am not that worried about the [inflation] rate because it was only for one month. We have to keep watching," he said.

Deposits have increased significantly as commercial banks have raised their deposit rates. This has eased the BOT's concerns over low household savings.

According to the BOT, bank deposits in March increased Bt55.9 billion from the previous month, and grew 11.6 per cent from the same period of last year.

The increase was caused by bank deposit rate hikes and the issue of attractive deposit products, said the report.

The three-month and 12-month deposit rates of the four largest banks in March were up 0.5 and 0.5 to 0.75 percentage points, respectively.

Anoma Srisukkasem

The Nation