Kasikornbank has projected that the country's interest rates will start to rise in next year's second quarter, with the policy signal rate to be hiked first.

"The one-day repurchase rate will possibly reach its bottom this year or early next year. Then its upward trend is expected to start in next year's second quarter, when the inflation rate will increase slightly," president Prasarn Trairatvorakul yesterday told a seminar entitled "Economic Trends in the Second Half of This Year".

Prasarn, however, forecast that the Bank of Thailand would probably reduce its policy rate 25 basis points for the last time at next month's meeting. He said a rate cut or an unchanged policy rate would not be a surprise. His forecast is based on the assumption that domestic consumption and private investment remain weak.

The country's policy rate has decreased 150 basis points since early this year, from 5 per cent to 3.5 per cent.

Prasarn said the banking sector recorded loan growth of only 4.8 per cent in the first half, far below the 10 per cent in the same period last year. As a result, loans provided for the entire year are expected to be lower than last year.

With greater confidence, Kasikornbank will revise the country's economic growth projection from 3.5-4 per cent to 4-4.5 per cent for the year.

Others at yesterday's seminar expressed similar confidence that the Thai economy would likely show a better outlook in the second half.

Tourism Authority of Thailand (TAT) governor Pornsiri Manoharn and Joint Foreign Chambers of Commerce in Thailand chairman Peter van Haren agreed Thailand was still an attractive country, both as a travel destination and a place for investment.

Van Haren said foreign investors had started thinking of continuing their investment plans here, because they had been waiting for quite a long time already, and their business plans needed to be implemented. In addition, they still perceive Thailand as a country with strong fundamentals, given the impressive development of its infrastructure.

TAT governor Pornsiri said the country's popularity was rising among European and Asian visitors, who had always been keen travellers in Thailand before the 2004 tsunami. This will certainly enable the TAT to achieve this year's revenue target of Bt547 billion but not a 14.8-per-cent rise in terms of traveller numbers. The TAT also expects to witness Bt377 billion in revenues contributed by domestic tourists.

Van Haren, however, urged the government to ensure approval of the draft constitution and a new general election this year. He said these were two key factors that foreign investors were looking at in making their business decisions.

Meanwhile, the Fiscal Policy Office said economic indicators sent mixed signals last month, with a slightly better picture of growth.

Export growth remains the key factor driving the economy, office director-general Pannee Sathavarodom said yesterday. Government spending has accelerated, but private investment and consumption has slowed, said Pannee.

Budget disbursement last month rose 54.2 per cent year on year to Bt137.1 billion. Government revenues stood at Bt241.4 billion, up 7.1 per cent.

Exports expanded 20.9 per cent in US dollar terms, reaching US$13 billion (Bt449 billion). Exports rose 11 per cent in baht terms.

"Indicators last month suggested mixed signals, and it was not as bad as we thought," said Kanit Sangsubhan, director of the Fiscal Research Institute, the think-tank arm of the Finance Ministry.

He said the economy had been expected to bottom out last month and would start to recover in the third and fourth quarters.

Somruedi Banchongduang,

Nitida Asawanipont,

Wichit Chaitrong

The Nation