INSTANT VIEW 1-Thailand holds key rate steady at 3.25 pct

Reuters Tuesday December 4 2007

BANGKOK, Dec 4 (Reuters) - The Bank of Thailand held its policy rate steady at 3.25 percent on Tuesday, as expected, trying to balance the need to promote economic growth while combatting the threat of inflation.

KEY POINTS:

- All 12 analysts polled by Reuters last week had forecast the central bank would hold the one-day rate unchanged.
- Six of the analysts expected the rate to remain unchanged until the end of 2008. Five predicted rises of up to 50 basis points during the second half of next year.

COMMENTARY: SETHAPUT SUTHIWART-NARUEPUT, ECONOMIST, SCB SECURITIES
"The rate was unchanged as we expected and I think the interest rate is going to stay unchanged until late in the second quarter or early third quarter of next year.

"We see rising inflation, but domestic demand has not risen as fast as it should. The headline inflation we saw yesterday might look good, but the overall demand remains weak."

USARA WILAIPICH, ECONOMIST, STANDARD CHARTERED BANK

"The decision to hold rates unchanged at 3.25 percent affirmed that the BoT's easing rate cycle has finished. Looking forward, the risk to monetary policy is on the upward bias.

"However, we believe there is no rush for the BoT to hike rates anytime soon. We believe that core inflation will remain well contained within the BoT's target in the next twelve months".

MARKET REACTION:

- Thai stocks <.SETI> were down 0.64 percent at midday before the announcement and moved down slightly afterwards. The baht remained stable at around 33.83 against the dollar in onshore trade and was around 30.55 offshore .

BACKGROUND:

-- The central bank has cut rates five times this year following two years of aggressive tightening to combat oil-fuelled inflation.

-- Analysts polled by Reuters expect average inflation to fall to 2.4 percent in 2007 and 2.7 percent in 2008 from 4.7 percent in 2006.

-- The National Economic and Social Development Board (NESDB), the state planning agency, and the Commerce Ministry forecast on Monday that inflation would average 3.0-3.5 percent in 2008, up from a projected 2.3 percent in 2007.

-- The central bank predicted in October that headline inflation would average 1.8-2.3 percent in 2007, and 1.5-2.8 percent in 2008.