Central bank expected to leave policy rate alone

Thailand's Monetary Policy Committee (MPC) meets on August 27, when it is expected to keep its policy rate at 3.5 per cent.

Prices of oil and commodities have declined significantly. Crude oil for September delivery traded at US$119.52 (Bt3,975) a barrel, up 35 cents at 9.03am London time in electronic trading on the New York Mercantile Exchange. Yesterday, it fell as much as $1.07, or 0.9 per cent, to $118.10 a barrel.

On Tuesday, the contract settled at $119.17 a barrel in New York, after dropping to $118, its lowest level since May 5.

Aside from lower oil prices and less pressure on inflation, another factor that many are speculating might affect the MPC decision is the "Virabongsa factor".

The appointment of Virabongsa Ramangkura as the head of the government's economicadvisory team has made many believe it will adopt a progrowth approach. Virabongsa has made it clear on many occasions he is against Bank of Thailand rate hikes on businesssector expenses.

Though many economists are convinced another 25basispoint increase is possi¬ble toward the end of this year, it is likely the central bank will keep its oneday repurchase rate unchanged at the end of this month.

Asian stocks have had their best rally in more than three months, led by automobile and electronics manufacturers, on speculation lower oil will slow inflation and spur consumer spending.

Federal Reserve policymak¬ers indicated that interest rates would not budge until next year as they wait for the credit crisis to abate and infla¬tion to ease. It said "downside risks to growth remain", drop¬ping a reference from June's statement to "diminished" dangers.

The Fed said price increases were of "significant concern". The tweaks to the Federal Open Market Committee's statement signal that Chairman Ben Bernanke and his team want to avoid an early rate increase that further weakens employment and fuels instability in financial markets, economists said.