Positive deposit rate expected this month
The real deposit interest rate was minus 0.08 per cent in July, but the rate is expected to enter positive territory this month for the first time since early 2003, according to the Bank of Thailand (BOT).
The real minimum lending rate (MLR) jumped dramatically from 1.6 per cent to 3.1 per cent in July, thanks to that month's lower inflation rate of 4.4 per cent. Despite July's unchanged nominal deposit rate, the real 12-month deposit interest rate improved from minus 0.32 per cent in June due to a decline in inflation expectations. A BOT source said the rate would become positive for the first time in three and a half years in August amid decelerating inflation and interest-rate hikes by commercial banks. "Although commercial banks did not raise their deposit rates, the real deposit rate will enter positive territory this month as the outlook for inflation has improved significantly," the central-bank source said. The rising real deposit rate, in theory, will boost savings and lessen consumption. The source said, however, that the higher nominal deposit rate had already bolstered savings. The source said the rising real MLR might affect investment only in some sectors, as the slowdown in investment had been caused by many factors. Lowered uncertainty about risk factors along with low interest rates should jack up investment, the source said. The real deposit rate is calculated from the largest four banks' nominal deposit rates of 4 per cent minus the expected inflation rate for the next 12 months. The real MLR is computed from the banks' MLR of 7.5 per cent minus the projected inflation figure. The real deposit rate has been negative since the beginning of 2003 due to super-low interest rates. The central bank has been concerned that the prolonged negative deposit rates will discourage savings and boost consumption. A low level of savings also endangers economic recovery by choking off liquidity for investment. As of May, the total deposits of businesses and households was Bt5.91 trillion, 13 per cent higher than in May 2005. Separately, BOT assistant governor Krirk Vanikkul said the central bank would this week submit to the Finance Ministry a revised set of proposals for regulating the credit-card business.
Anoma Srisukkasem The Nation
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