The Bank of Thailand (BOT) is playing down concerns over higher unemployment, soaring oil prices and delays in the government's budget disbursement for the next fiscal year, saying the current situation has already been factored into the central bank's policy considerations.

The central bank admitted these risk factors would reduce domestic demand, as a result of natural adjustments to the situation. The bank, however, did not allow oil companies to reduce their contributions to the Oil Fund.

Suchada Kirakul, senior director of the BOT's Monetary Policy Group, said each business had to adjust to the new environment, because they would find it difficult to raise prices on their products. But she was optimistic that while some companies had laid off employees, others needed more staff to meet expansion requirements, such as with the recent higher demand for natural-gas vehicles. In addition, agricultural-sector employment has continued to increase, thanks to higher prices and increased production.

"It's more difficult to get a net return on investment. They cannot push prices up too much, but the cost of funds, oil prices and wages have increased. Every business in every country is facing this situation," said Suchada.

The National Statistical Office reported that the number of unemployed workers rose to 640,000 in March, higher than February's 560,000, a result of rising oil prices pushing up production costs.

BOT governor MR Pridiyathorn Devakula said data should be considered on a long-term basis, rather than for a single month.

"The unemployment rate has in fact been dramatically decreasing for several months," he said.

Suchada said the figure should be measured on a year-on-year basis. The unemployment rate was 1.8 per cent in March this year, lower than the 2 per cent in March 2005.

She also said oil prices had remained under the BOT's worst-case estimate of US$73 (Bt2,800) per barrel in the Dubai market this quarter. It currently stands at $66 a barrel and is unlikely to cause economic growth to miss the projected estimate of 4.25 per cent for the year.

"Increases in oil prices mean consumers must pay higher tax, resulting in a slowdown in consumption. It's a natural mechanism in situations like this, but we have to create a balance," she said.

A Citigroup economic report said moderate growth in private spending, a tighter financial environment and a stronger baht could mitigate the threat of inflation brought by high oil prices. The company forecast Thai economic growth this year at 4.7 per cent and inflation at 5.2 per cent.

Suchada said the BOT disagreed with the measure to reduce contributions to the Oil Fund, because that would reduce the confidence of bondholders and discourage the fund from issuing further bonds.

She said a three-month delay in the government's fiscal 2007 budget was still less than the BOT forecast of a two-quarter delay. The BOT projected government consumption and investment in the next fiscal year would decline Bt87.6 billion, to Bt1.55 trillion.

Separately, Pridiyathorn said he did not want lending rates to climb too much, as a rate of 8-8.5 per cent was acceptable to the private sector.

Anoma Srisukkasem

The Nation