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Political risk in Thailand is heightened this week, as the future of the People Power Party is now uncertain. After last week's court rulings, analysts expect the party could be dissolved by year's end. The future of the entire Cabinet is uncertain, as the People's Alliance for Democracy submitted a letter on Monday to the National Counter Corruption Commission pushing for the Cabinet's impeachment.

The ongoing political tension has adversely affected the confidence of investors and consumers, already under pressure from rising oil prices and inflation.

The uncertainty over the future of the People Power Party has led to doubts as to whether the budget for the next fiscal year would be disbursed on time to help bolster the economy. The court rulings last week could even lead to House dissolution, which, if it were to happen, would delay the passage of the budget bill, which is currently in its second reading in Parliament.

The country's economic problems must be tackled by coordinated efforts. The government has to use the fiscal tool to inject money into the system. The central bank, meanwhile, must ensure price stability by managing price rises to ensure they stay at a manageable level.

However, the government has lately been caught up in political developments. The Finance Ministry failed to inject the amount it should have into the economy. The government's ability to use fiscal means to boost the economy has also been marred by political problems or politicians spending too much time allocating benefits among themselves, causing a delay in new public investment.

While the fiscal side has been inefficient, the central bank is facing increasing calls to use monetary policy to boost economic growth.

The focus is now on the Bank of Thailand and whether it will increase the interest rate at a meeting of the Monetary Policy Committee tomorrow. Several economists have come out to express their views on what the central bank should decide over the past several days. Former deputy finance minister Virabongsa Ramangkura earlier said that raising the rate would be comparable to giving the wrong prescription to a sick patient. He argued that inflationary pressure in Thailand is not demand-pull; it stems from rising oil prices and thus cannot be dealt with by increasing the interest rate. He said that the rate rise would make matters worse as it would dry out liquidity from the market, affecting borrowers' ability to service their debts.

Virabongsa's view was echoed by private operators and people close to Finance Minister Surapong Suebwonglee such as Vijit Supinit, the chairman of the Securities and Exchange Commission. Thus, the signals from the political side were clear: they do not want to see the rate increase.

On the other hand, bankers and some economists suggested the central bank raise the policy rate by at least 25 basis points to send a signal to the market that it would continue to strictly oversee price rises. Sending out a signal that the central bank is committed to anchoring inflationary pressure is essential to avoid self-fulfilling inflation expectations.

However, if the Monetary Policy Committee decides to keep the rate unchanged, those in the market would think that the Bank of Thailand is shifting its priorities away from monetary stability due to the political pressure to maintain economic growth.

The recent meltdown of US mortgage giants Fannie Mae and Freddie Mac has emerged as another factor for the committee to consider.

Too much of a rate increase may affect the value of the Thai baht beyond a desirable level as well as its competitiveness in the midst of a US economic slump, with its carry-on effects for the world economy.

Meanwhile, the Thai baht will continue to come under pressure as it braces for more street protests on Samak's push to amend the Constitution.

The Bank of Thailand is facing a challenge to stand firm as the pillar to protect monetary stability amidst a whirlwind of economic and political pressure. Its decision tomorrow will be crucial for the central bank to make its policy priorities clear.