BOT hints at rate hike in second half

At a press conference yesterday, BOT Assistant Governor Paiboon Kittisrikangwan said inflation would remain low this year, because the government had extended its measures to ease the cost of living until the end of the first quarter. Headline inflation, without volatile items like energy, could be 3-5 per cent, while core inflation could be 1.3-2.3 per cent.

He said monetary policy could return to normalcy this year if the private sector and the economy saw stable expansion. If core inflation rises above 2.3 per cent in the third or fourth quarter in the wake of higher oil and commodity prices, the central bank may consider the possibility of increasing the policy rate.

"The current low-rate policy is aimed at supporting economic recovery. Once the economy is stable, the rates should be normalised, taking into account long-term stability and economic expansion," he said.

"A rate hike would not pose a threat to investment and economic recovery, but it should not be too late to cope with inflation or to prevent excess liquidity, which could cause bubbles."

The policy rate has been maintained at 1.25 per cent since 2008.

Regarding the baht, he said the BOT was ready to ensure its strengthening would not pose a threat to the economy. However, he ruled out fixing the rate.

Yesterday, the central bank highlighted the disrupted global recovery as one of the four main risk factors for the local economy this year but maintained the economic growth forecast for the country at 3.3-5.3 per cent on solid improvement in major indicators.

While the global economy could expand less than expected, the BOT said the Finance Ministry's stimulus package might not make the full impact if the disbursement rate did not meet the target. There is also lingering concerns over the fallout from the Map Ta Phut project suspensions, and the ongoing political instability is hurting investor confidence.

Paiboon said the risk factors would play a big role in Thailand's economic expansion.

He said the BOT had maintained its growth-rate forecast of 3.3-5.3 per cent for gross domestic product this year, unchanged from last October. Against last year's 2.7-per-cent contraction, the economy will continue the growth momentum seen in the fourth quarter when the growth rate was 4 per cent, thanks to the global economic recovery and improvements in domestic consumption, private investment and exports.

Paiboon said this was reflected in higher consumer- and industrial-confidence indexes. The rising confidence will lead to an expansion in imports.