MPC leaves policy rate unchanged

MPC leaves policy rate unchanged
Bangkok Post (11 October 2007)

Indicators show pickup in confidenceThe Bank of Thailand yesterday kept short-term interest rates unchanged due to concerns over rising inflation. The central bank's Monetary Policy Committee (MPC) also noted that economic trends had improved thanks to stronger business and consumer confidence and a pickup in government spending. The decision left the one-day repurchase rate unchanged at 3.25%. The MPC this year has cut interest rates five separate times in a bid to boost economic growth. Suchada Kirakul, an assistant governor for the Bank of Thailand, said the upcoming election had helped lift market sentiment, with resulting improvements in both domestic consumption and private investment. Inflation could pick up in the future due to rising global oil prices and the government's decision to scrap curbs on product prices. ''Recent economic data showed signs of improvement in domestic demand, both consumption and investment. Exports continued to expand well despite lower growth in the latter half of the year,'' the MPC said in a statement. ''Inflation remained low. Going forward, there were increased risks of upward price pressure compared to the previous meeting due to higher oil prices and the likelihood of price increases for certain essential goods and services.''
Mrs Suchada said economic data over the past few months showed that domestic consumption had improved. Political uncertainties, a key factor dampening consumption in the past, had eased with the of passage of the new constitution and the government's firm commitment to hold elections on Dec 23. 'The MPC expects domestic demand, especially consumption, to continue to recover. Besides, more certainty on public spending will help related private investment to move ahead. The role of monetary policy here is to ensure a supportive environment,'' Mrs Suchada said. The government's move to increase civil servants' salaries by 4%, the passage of the 2008 budget and a clearer outlook for the new Bangkok mass transit system routes were other positive factors, she added. Inflation risks, however, included rising prices for oil, food, commodities and domestic goods prices following the government's revocation of an order by the Council of National Security (CNS) to cap product prices. ''The government has revoked CNS announcement No 8. We think entrepreneurs will raise product prices once the economy recovers,'' Mrs Suchada said. She said the central bank would increase its oil price assumption for 2007 slightly as prices since September had exceeded expectations. The 2008 forecast would remain unchanged at $65 per barrel for Dubai crude.''We will revise the oil price forecast up, but it will not be significant. Oil prices just exceeded our expectations by 80 cents since September. [Dubai] Oil prices stood at an average of $64 per barrel for the year to date,'' she said. She said commercial banks had been slow to cut interest rates, in part due to the credit crunch caused by the US sub-prime mortgage crisis. ''The factor of a high savings rate structure has been less important. Banks have been cautious in lending as the risks have increased,'' she said. Ms Suchada added that the economic impact from the US sub-prime mortgage market crisis had so far been limited in Thailand. But the MPC would monitor it closely as the problems were likely to be protracted and have an indirect impact on Thai exports. Meanwhile, Thai stocks rose 0.87% yesterday in line with gains in regional markets. Analysts said the central bank's rate decision had a small impact on the market, which was driven mostly by foreign buying in large-cap stocks. The Stock Exchange of Thailand index closed at 875.10 points, up 7.51, in healthy trade worth 27.75 billion baht.