The real deposit interest rate touched 0.12 per cent in August, its first swing into positive territory since 2003, according to a source at the Bank of Thailand (BOT).

Among the factors that pushed the real 12-month deposit rate out of the red were the subdued headline inflation outlook for the next 12 months; the lower headline inflation in August, which dropped to 3.8 per cent year on year from 4.4 per cent the month before; and interest rate hikes by commercial banks, said a source from the central bank.

The BOT forecast that the real deposit rate would gradually increase because inflation had already peaked out and banks were unlikely to slash their rates soon, the source said.

The real deposit rate is calculated by deducting the 12-month fixed deposit rate from the expected 12-month headline inflation rate.

"Before August's inflation rate was announced, we expected the real deposit rate to turn around in August because inflation has slowed down significantly," said the source.

The last time the real deposit rate was announced, it was negative 0.08 per cent. The real deposit rate has been negative since 2003 as commercial banks slashed their rates to extremely low levels in line with the central bank's signal interest rate. At the same time, the inflation rate was on the rise.

The real minimum lending rate was 3.89 per cent in August, compared to 3.10 per cent the month before. The central bank source said the latest real deposit interest rate would improve the Kingdom's long-term economic structure. The BOT has been concerned that if the rate remained negative it would hurt household savings.

"There might not be enough savings to boost future economic growth if the deposit rate remained negative over the long term," the source said.

However, the rising deposit rates offered by banks have helped boost savings since the beginning of the year, when deposits recorded a two-digit growth rate.

As of July, deposits in the banking industry were Bt6.4 trillion, up 11.1 per cent from the same period last year. Deposits at financial institutions that the BOT recently upgraded to banks also grew by 8.5 per cent.

According to the BOT, the total deposits of businesses and households amounted to Bt5.8 trillion in June, rising 11.1 per cent on the year. The value of time deposits expanded 34 per cent, while deposits in savings accounts fell 13.8 per cent.

The source said the higher real lending rates might have had a small impact on investment, since the rates were still considered low compared with historical levels.

Meanwhile, the central bank's assistant governor, Nitaya Pibulratanagit, said the central bank stepped into the foreign exchange market on Tuesday to help ease the baht's strength in a bid to help Thai exporters. Nitaya said the baht's strength was in line with the weakness of the dollar.

Separately, BOT Governor Pridiyathorn Devakula said the baht's rise was in line with that of the Chinese yuan, which was good for Thailand. He did not elaborate.

The baht yesterday ended marginally stronger at Bt37.34 against the greenback, compared with Bt37.36 at the Asian market close on Monday.

Anoma Srisukkasem

The Nation