The economy will not feel much pain from the latest round of hikes on loan interest rates, which are unlikely

to go higher than 8.25 per cent, the Bank of Thailand said yesterday.

"In the past, lending rates were much higher than the current level but the economy could still keep growing," Governor Pridi-yathorn Devakula said.

Chatri Sophonpanich, chairman of Bangkok Bank (BBL), expressed concern about minimum lending rates (MLR) going up, especially as the banking system was still flush with liquidity.

"If the MLR climbs higher than 8 per cent, it will affect

borrowers' debt service ability. This comes while the country's eco-

nomy is on a downward trend. GDP

will grow by only 4 per cent this year," he said.

This round of rate changes by

banks - between 25 to 50 basis

points -mainly reflects the market environment rather than the central bank's moves to tighten monetary policy, he said.

When Chatri gave his comments,

his bank had yet to take a stance on

its rates. On Monday, Siam Commer-

cial Bank and Kasikornbank raised

their rates effective yesterday by 25-50 basis points, while TMB Bank said

yesterday it would raise its lending rates by 25 basis points effective today, while its deposit rates would remain unchanged.

Tarisa Watanagase, central bank deputy governor, said commercial banks have not raised market rates much because excess liquidity in the banking system remains high. Not all banks will raise rates this time around as it depends on their individual liquidity position, she said.

Pridiyathorn said the real MLR - MLR minus inflation - would enter positive territory at the end of this quarter or the beginning of next quarter, later than expected due to the soaring oil prices.

Central bank assistant governor Atchana Waiquamdee said commercial banks' interest rate adjustments on average so far have fallen behind the hikes in the policy interest rate since August 2004.

The real MLR remains low compared to previous figures, for example,

1.6 per cent in June. A clearer political situation would help encourage investment.

Despite the gloomy business sentiment in June, Pridiyathorn maintained that investor confidence would be restored as oil price surges and political uncertainties subside.

He is optimistic that investors will start investing again in machinery and inventory,

which have been used up as business sentiment improves, and will need loans.

Banks have raised their rates in anticipation of the rush in applications.

Tumnong Dasri, director of the

central bank's corporate debt-restructuring advisory department, ex-

pressed concern that rising interest

rates would boost strategic non-performing loans (NPLs) - loans of capable borrowers who intend to halt debt repayment.

NPLs among banks in the second quarter increased to 8.22 per cent of

total loans - from 7.97 per cent in the

first quarter - partly due to a slowdown in credit expansion. However, this

spurt in NPLs would subside as de-

btors and creditors adjust to the new environment of high oil prices, Tumnong added.

Anoma Srisukkasem,

 Somruedi Banchongduang

 The Nation