Core inflation to stay below target, says BOT

"We're trying to keep core inflation under the target, but how it will finally be depends on oil prices, which no one knows," she told a seminar yesterday co-hosted by the World Bank and the Fiscal Policy Office.

Atchana said the central bank had to take into account not only inflation, but also economic growth. She warned the government not to boost the economy to a point where it became overheated and pointed out that rising wages in the future might cause demand-pull inflation.

The seminar was told that high inflation and political tension were causing a capital outflow from Thailand. Experts were therefore concerned about liquidity drying up and urged the central bank to ensure sufficient liquidity for investment and economic growth.

Fiscal Policy Research Institute director Kanit Sangsubhan said the capital outflow over the past three months resulted from worry among foreign investors about high inflation and political uncertainty. The outflow has led to a weakening of the baht - opposite to last year's situation, when large inflows pushed the baht up.

He said there was now debate about whether the policy interest rate should rise or fall. Those who prefer a hike want to counter inflationary pressures, while their opponents want a low rate to shore up growth.

Kanit said what mattered most was ensuring sufficient liquidity to support economic growth and investment in mega-projects, because Thailand needed more investment in infrastructure projects.

Hans Timmer, manager of the World Bank's Development Prospects Group, said most developing countries had remained resilient despite a deterioration in their external environment caused by energy and food prices. However, several countries and vulnerable groups face major challenges from inflation. He warned that factors enabling the absorption of higher oil prices had deteriorated, as many countries face slowing export growth and rising inflation. Oil-importing countries face current-account deficits.