The central bank's Monetary Policy Committee is likely to raise the policy rate in the third quarter, though not at its July 14 meeting, overlooking requests from the private sector to maintain the rate on fears of higher financial costs.
Bank of Thailand governor designate Prasarn Trairatvorakul expects a gradual increase of policy rate to 2 per cent at this year's end, starting from August.
Kosit Panpiemras, executive chairman of Bangkok Bank, said the policy rate should be hiked as the global economy is picking up and the rate could not be kept low only to spur economic growth. "The world economy as well as Thailand's domestic market are improving. Hence, we should hike the interest rate," he said, adding he had made this comment personally to new Bank of Thailand governor Prasarn Trairatvorakul, whom he praised. He was not specific how the rate should stay at the end of this year.
Somchai Pakapaswiwat, an economics guru, supported the impending rate hike, saying it is unavoidable as inflation is expected to hit 3 per cent due to the 20 per cent export growth, which has exceeded the Commerce Ministry's forecast.
"This is the appropriate timing for adjusting the interest rate upward," he said.
However, Payungsak Chartsuthipol, chairman of the Federation of Thai Industries (FTI), said the rate hike should be delayed until the end of this year to prevent negative impacts on the private sector.
"We will propose that the BOT maintain the interest rate in order to reflect the private sector's requirement. If the BOT gradually increases the interest rate, it may not have a serious impact on the private sector. But if the BOT believes that this is the appropriate timing to hike the interest rate, we want it to assess the impact closely," he said.
Finance Minister Korn Chatikavanij yesterday welcomed the MPC's decision to hike the rate soon. While assuring independence of the central bank in monetary policies, on the sidelines of the 4th Euromoney Thailand Investment Forum, he noted that a small rate hike would not affect economic recovery. He admitted that the 1.25 per cent rate at present is very low.
However, Korn urged the MPC to take into consideration the possible impact on economic recovery of the rate hike.
"I'm worried about the economic policies to be implemented in the next 2-3 years, which could result in lower economic growth," he said, referring to spending cuts to narrow down budget deficits.
Bank of Thailand Governor Tarisa Watanagase reiterated on Tuesday that the rate could be raised soon to stem any overheating signs.
Tisco Securities expected the MPC to raise the policy rate by 25 basis points at the July meeting.
Kasikorn Asset Management expects the policy rate to end this year at 1.75-2 per cent, from the historic low of 1.25 per cent at present.
According to DBS Vickers Securities (Thailand), inflationary pressures are low at present but would rise next year as inflation lags growth by a year or two. With core inflation of 1.2 per cent in June, that implied a very mild price rise of the same degree in sequential terms.
"However, as the output gap is closing faster than thought earlier, the central bank would have to remove monetary policy accommodation and return rates to neutral by early/mid 2011.
"Accordingly, we think despite risks from the European debt crisis and the domestic political uncertainties, the central bank will begin the process of normalisation in interest rates with a 25 basis points rate hike in the third quarter and 50 basis points of rate hikes in the fourth quarter," DBS said.