The interest rate-setting committee at its meeting yesterday held off making any changes to its 14-day repurchase rate, keeping it at 5 per cent, as inflation was softer and oil prices lower than expected. The decision was widely anticipated by the market.

Atchana Waiquamdee, assistant governor of the Bank of Thailand, said inflationary pressure remained due to risks, such as terrorism, which could push up oil prices far beyond predictions.

The central bank was also worried that rising prices of goods and higher wages would aggravate inflation.

Although crude oil was US$4 (Bt150)per barrel cheaper than the committee's estimate from its last meeting, the drop could not ease inflationary pressure completely.

"Economic stability has improved due to decreasing inflation and the turnaround in the current account situation. Despite the recent decline of oil prices, there are uncertainties, which are risk factors requiring further caution," she said.

Krirk-krai Jirapaet, a member of the committee, said inflationary pressure was clearly improving but oil price remains the factor that must be closely monitored. Oil price hikes could drive up production costs and erode purchasing power, leading to economic difficulties, he said.

Atchana said core inflation was now more likely to move around the bottom of the range of 2-3 per cent forecast by the central bank rather than exceed the target ceiling of 3.5 per cent.

Oil is going for $68-69 a barrel in the Dubai market, lower than the central bank's forecast of $71 per barrel. The bank, however, maintained its assumption that the oil price would average $71.

Atchana said any loosening of monetary policy would have to wait for more evidence that trends would be sustained, including lower-than-expected economic growth, declining oil prices and weakening inflation.

But the economy's performance in the second quarter of 4.9-per-cent growth was better than the central bank's forecast, she said.

"A change in interest-rate direction will occur when inflation clearly shows improvement for more than two months. Inflation has slowed down for only two months," she said, adding that the central bank would have more room to oversee economic growth if prices levelled off.

Krirk-krai said he wants the economy to expand at 4-5 per cent rather than 7-8 per cent, as economic stability would allow authorities to manage policy matters more easily.

Atchana insisted that the spread between Thai and US policy rates was not central to the committee's decision-making. A quarter or half a percentage point difference in the spread was tiny compared to the fluctuation in foreign-exchange rates.

"Our policy does not depend on the US Federal Reserve. But implications from US inflation and global oil prices could influence domestic inflation. We change our policy in line with local inflation rather than any US move," she said.

Krirk-Krai said he was concerned about the baht's appreciation and asked exporters to accept the changing situation by adjusting their production processes to maintain their competitiveness.

Anoma Srisukkasem

The Nation