He said that weakening domestic consumption and the economic slowdown has caused his company to forecast a change in monetary-policy direction from an earlier tighter stance. Appreciation of the Chinese yuan will also widen the opportunity for the central bank to cut the policy rate.

The expansionary policy was based on an assumption that the US economy would grow by only 2.4 per cent, lower than the Federal Reserve's forecast of 3-3.5 per cent for next year. The company so far is projecting that the Thai economy will grow 4.7 per cent in 2007.

"If the economy grows higher than expected, the key rate will not be slashed. Domestic demand has been very weak. A lower interest rate will bolster economic growth," said Supavud at a seminar entitled "Economic Outlook and Interest Rates" hosted by the Thai Real Estate Association.

The BOT's policy interest rate is currently at 5 per cent following the Monetary Policy Committee (MPC)'s decision on Wednesday to hold the rate. Economists and analysts forecast that the key rate has already reached its peak or will rise slightly this year to crack down on inflation.

Supavud said the lending rate of commercial banks might increase by another 0.5 percentage point to a peak as the policy rate climb is halted.

However, the BOT may continue to raise the key rate to narrow the interest-rate spread between Thailand and the US and to reduce the fluctuation of capital flows if the US federal-funds rate jumps to 6 per cent, he said.

The Fed fund rate is currently 5.25 per cent and is expected to rise to 5.5 per cent at the next meeting of the US central bank's Federal Open Market Committee.

Supavud added that soaring oil prices were a factor for the rate hikes but that oil prices were unlikely to climb much higher.

The interest rates of northern Asian countries have also been in a rising trend due to high inflation. Phatra Securities forecasts that Japan's central bank will raise the policy rate by another quarter percentage point this year and 0.5 percentage point next year.

Supavud said the baht is likely to appreciate because of a slowdown in imports, exports acceleration and foreign investment. The strong baht will also be affected by China's currency revaluation, but the BOT will try to maintain the currency in favour of exporters.

Meanwhile, he said, it was possible that the government would have a budget deficit for 2007 because revenue growth was declining. Tax collection, currently running at 10 per cent higher than last year, is already equal to nominal gross domestic product.

It had earlier been higher than GDP growth.

"The government will not have enough budget for its stimulus package, as it did in the middle of the year," he said.

Kongpan Pramoj Na Ayudhaya, director of the Thai Real Estate Association, said at the seminar that commercial banks had been stricter in providing credit in the first quarter because of the business sector's declining ability to repay debt.

Property developers have had to bear higher construction costs, while home-buyers' purchasing power has been dampened by the oil-price hikes and the economic slowdown. However, demand for low-end houses remains high, leading to fierce competition in that market.

Anoma Srisukkasem

The Nation