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Published on November 27, 2007

Experts say the surge in exports to a record high last month is further reason to believe the Bank of Thailand will leave its policy rate unchanged for the time being.

Commerce Minister Krirk-krai Jirapaet said yesterday the BOT was likely to keep its policy rate at 3.25 per cent for some time.

The central bank's Monetary Policy Committee meets again on December 4.

High global oil prices have increased inflationary pressure but the increase in the consumer price index this year will likely be contained to a maximum of 2.5 per cent, aided by the strong baht, Krirk-krai was quoted by Dow Jones Newswires as saying in an interview at the weekend.

Strong growth in exports also means there is upside risk to economic growth.

"I don't think there will be any change in the interest rate anytime soon," the minister said in response to a question about whether he believes the monetary easing cycle has ended.

Exports surged to an all-time high in October, with strong growth across all product segments, especially in recently entered markets.

Based on raw customs data, October's exports jumped 26.7 per cent from a year earlier to US$14.52 billion (Bt491.2 billion) and imports rose 20.2 per cent to $13.02 billion.

Over the first 10 months of the year, exports were up 17.2 per cent to $125.1 billion and imports rose 7.8 per cent to $115.2 billion, producing a trade surplus of $9.95 billion.

 DBS Group Research also believes the central bank will keep its policy rate unchanged.

 "We expect similar trends in the Bank of Thailand trade data. This should provide an added reason for the BOT to be content with the present degree of monetary policy accommodation. Should the trends in October economic growth persist in November, we may even see 2007 growth rise more than our forecast of 4.3 per cent," DBS said.

This is in line with the central bank's view.

BOT Governor Tarisa Watanagase had earlier hinted that recent evidence of domestic economic recovery meant there was now less need for cuts in interest rates, while financiers see their funding costs rising next year.

"I think the need for further accommodative monetary policy is perhaps less now, because of the firm recovery that we have already witnessed in the domestic sector," she said.

However, BOT Deputy Governor Atchana Waiquamdee recently expressed concern that domestic demand would pick up more slowly than the export slowdown, which is more a risk to the economy than a rise in oil prices and the sub-prime mortgage crisis.

Kasikornbank president Prasarn Trairatvorakul had previously predicted that the Monetary Policy Committee would maintain the policy signal rate at its December meeting, as there is no room for further cuts. He sees the down cycle of the interest-rate trend as having already ended.

Citibank said in its Investment Daily report that a major upside, assuming buoyant external trade persists up to December, would be a material contribution of net export volume to gross-domestic-product growth during the quarter.

The central bank has cut the policy rate by a total of 175 basis points this year, but left it unchanged at its last two meetings in August and October.

All nine economists in a Dow Jones Newswires survey expect the rate to be left unchanged at the next meeting of the Monetary Policy Committee.

The consumer price index rose 2.1 per cent during the first 10 months of the year.

The Nation,

Dow Jones Newswires