Is the present National dilemma Inflation versus growth?

This happened even before the Monetary Policy Committee at the Bank of Thailand decided to tighten monetary policy. What has

happened? Are we going into a rising interest rate environment in Thailand? What signals can we read from these changes? And where should we invest our savings in this prolonged volatile economic environment?

Probably these are too many questions to answer at one time. And more importantly the answers could change as new uncertainties keep popping up around the globe.

The key global influence, the US Federal Reserve Board, has broken the tradition of not commenting on the US dollar, probably in fear of the inflationary impact of a weak currency. Meanwhile, the subprime problem and the follow-on effect on the US housing industry are also far from over.

At the same time, we are seeing no significant increase in world oil supply in the near term. Worse still, the marginal cost of new supply can only be more expensive due to geology that is more and more complex. The most important question is: Can the global economy tolerate these high oil prices?

In the past two or three years, one main relief valve for the rest of the world, except the US, has been the continuous weakening trend of the dollar.

If this trend is halted or reversed and the oil price keeps moving up, we may encounter a period of slow growth with high inflation - stagflation!

Something will probably have to give here. From data coming out of the US, we felt that the US slowdown is still far from over. And in Asia, domestic consumption will continue to support growth outlook. Countries with abundant supplies of soft commodities will also have a better advantage.

As for Thailand, the high oil price remains the most threatening factor for the economy. Political uncertainty also has a strong bearing on the confidence of foreign investors. Interest rates could continue to rise slowly if economic growth remains resilient as we have seen in the last few quarters.

As for investment choices, barring a doomsday scenario, inflation-hedged investment is the most preferable now. Property, property funds and commodities, especially gold, are recommended for diversification purposes.

Adisorn Sermchaiwong is executive vice president of Siam Commercial Bank.