Bank of Thailand Governor MR Pridiyathorn Devakula cautioned against the possibility of a lower interest rate, saying the central bank needs more time to monitor inflation, despite the sluggish economic trend.

The government's think-tank said gross domestic product in the second quarter climbed more slowly than the first three months of the year, when it expanded by 6.1 per cent.

The NESDB predicted that growth would slow slightly in the third and fourth quarters compared with the second quarter.

"Slower private investment and consumption largely caused lower growth and if private investment further slows down in the fourth quarter, a drop in growth would be significant in the first quarter next year," Ampon Kittiampon, secretary-general of the NESDB, warned yesterday.

Growth in the first half came in at 5.5 per cent and the NESDB forecast full-year growth at 4.2 to 4.7 per cent, said Ampon.

Higher oil prices and interest rates and inflationary pressure have depressed private investment. Moreover, if the uncertainty in politics does not end this year, it will further erode investor and consumer confidence, said Ampon.

Private investment expanded by 3.3 per cent in the second quarter, lower than the growth rate of 6.6 per cent in the previous quarter.

Investment in machinery slowed particularly sharply, expanding by 3.9 per cent - against 8.5 per cent in the first quarter.

Private consumption expanded by 3.7 per cent, compared with 4.1 per cent in the previous quarter.

Public investment, however, was slightly up from the previous quarter - at 5 per cent against 4.7 per cent.

Import growth slowed down as manufacturers utilised their inventory. Imports in dollar terms expanded by 3.2 per cent, compared with growth of 5.4 per cent in the previous quarter.

Ampon said if the interest rate remains unchanged or starts to drop, and if elections are held this year, private investment is likely to pick up. He expressed optimism that the interest rate would not rise further as inflationary pressure had eased in August.

In a separate interview, Pridiyathorn said: "Inflationary pressure eased in August but world inflation is still high as crude oil prices remain high."

Thailand's headline inflation rate fell to a 14-month low last month, raising hopes that the central bank might leave interest rates unchanged when it holds a policy meeting tomorrow - and probably begin to cut rates in the first half of next year.

Ampon said if the government agencies and state enterprises could speed up their spending, he believed economic growth this year would hit 4.5 per cent.

Wichit Chaitrong

The Nation