Fed left plans for more cuts dependent on data: meeting notes

Fed left plans for more cuts dependent on data: meeting notes
The Business Times (11 October 2007)

(WASHINGTON) Policymakers at the Federal Reserve Board left their last month's meeting without any specific plan for further interest rate cuts because they were unsure how markets and economic growth would evolve, minutes of the Sept 18 meeting show. 'Further actions would depend on how economic prospects were affected by evolving market developments and by other factors,' according to the records, released here on Tuesday. Any statement on the balance of risks to the economy 'could give the mistaken impression that the committee was more certain about the economic outlook than was in fact the case'. The report reinforces comments by Fed officials, including vice-chairman Donald Kohn this month and show that the central bank has not committed to a series of rate reductions. Mr Kohn said last Friday that policymakers must be 'nimble' in setting policy because of risks to both growth and inflation. Fed officials 'all' concluded it was best to lower their benchmark rate by half-a-point to 4.75 per cent, double the amount that most economists had forecast, the minutes showed. The release includes summaries of conference calls by Fed officials on Aug 10 and Aug 16. Policymakers discussed changing the lesser-used discount rate on Aug 10, before they reduced it half-a-point on Aug 17, the minutes said. Following the policy vote on Sept 18, the Federal Open Market Committee (FOMC) continued to discuss communications issues and 'additional policy options to address strains in money markets'. 'No decisions were made in this session, but it was agreed that policymakers should continue to consider such options carefully,' the minutes said, without being specific.The Aug 10 call showed the Fed discussed an 'adjustment' to the discount rate as the Fed sought to deal with growing tumult in credit markets. The New York Fed added US$62 billion into the banking system on Aug 9 and Aug 10 - the largest amount of temporary liquidity injections since Sept 12, 2001.At that time, the Fed refrained from lowering the discount rate, the charge it makes to banks for direct loans. Fed officials six days later debated a discount rate cut, with one participant questioning the 'appropriateness' of such a move. The call ended with a unanimous vote in favour of a statement that said 'downside risks to growth have increased appreciably'. The Fed cut the discount rate half a percentage point the following morning to 5.75 per cent. The rate is usually one percentage point above the federal funds rate. Fed officials continued to express concern about inflation at the September meeting, citing rising labour costs and a depreciating dollar, the minutes showed. The US currency has slid to a record low against the euro this month. -- Bloomberg

Mama noodle prices set to rise

Mama noodle prices set to rise
Bangkok Post (11 October 2007)

Saha Pathanapibul Plc, the consumer product distribution arm of the Saha Group, will freeze prices until the end of the year on everything except Mama, Saha's market leading instant noodle brand. President Boonchai Chokwatana said Mama instant noodle prices would rise in December for the first time in a decade, likely by one baht to six baht per 55- gramme pack.
The increase reflects the sharp rise in costs of wheat flour and palm oil, two major ingredients used for noodles. An executive at Thai President Foods Plc, the Saha unit that makes Mama noodles, said wheat flour prices were up 60% from early this year and refined palm oil prices were up 50% from January. Commodity prices have risen strongly this year due to growing demand from biofuel producers. Thai President says wheat flour and palm oil account for half of its costs. ''Basically, we have been the last [noodle producer] to raise prices. The recent increases in wheat and palm oil prices have been extraordinary. We have never seen wheat flour prices rise by 60% in just nine months,'' Mr Boonchai said. The move comes even as the Commerce Ministry next week will meet with more than 100 consumer goods manufacturers and retailers seeking co-operation to maintain prices for some 200 key products. Mr Boonchai said Saha would co-operate with the ministry, but would seek assistance in the form of tariff cuts for imported raw materials to compensate for rising costs. Production costs for detergent, another major Saha product, had also risen in recent months, he said. The Saha Group has tried to maintain profit margins by improving efficiency in logistics and inventory management. The group has joined with major companies such as the CP Group, Mitr Phol group, Siam Cement and Thai Beverage to co-operate in maximising transport utilisation on key trucking routes. Boonyarith Mahamontri, the managing director of Saha affiliate Lion Corporation (Thailand), the manufacturer of Pao detergent, said average raw material costs remained unchanged in the first nine months. But costs rose by 3% to 4% in October alone, leading the company to look to alternative materials. ''Until now, sales of Lion Corp are still far from our target of eight billion baht for the whole year. We hope to achieve the target once the general elections are held this December,'' Mr Boonyarith said. Sales of Saha Pathanapibul in the first nine months of this year grew by 7%. It reported first-half profits of 267.51 million baht on revenues of 8.04 billion, compared with 2006 profits of 369.82 million on revenues of 15.71 billion. Mr Boonchai said 2007 sales were expected to rise by 7%, below an earlier forecast of 10%, to 17.5 billion baht

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.

SET expected to reach 920 points

SET expected to reach 920 points
Bangkok Post (11 October 2007)

SCB Asset Management predicts that foreign capital will continue to flow into the Thai markets and drive the SET index to reach 920 points by year-end. Vijchu Chantatab, an equity fund manager of SCBAM, said foreign investors were still looking to invest more in Asia including Thailand after worries on the US sub-prime crisis eased. As well, it is widely expected that the Bank of Japan is unlikely increase its policy interest rate after the US Federal Reserve cut its benchmark rate last month to help resolve the sub-prime mortgage problems. ''Several fund managers are now returning to obtain yen carry-trade loans again and invest in Asian equities. This will boost capital flows in this region and benefit the Thai stock market as well,'' Mr Vijchu said. The market gain would last until January after the year-end election. After that the SET is expected to move sideways until the new government announces its economic policies. Analysts agreed that the SET index would reach 1,000 points next year. Economic growth would be driven by private investment, local consumption and government investment, mainly in megaprojects. This year, earnings growth of listed firms is forecast at 8-9% and would rise to 15% next year. Local banks would be ready to lend more if local growth is higher. Mr Vijchu predicted that local interest rates would drop following the reduction of Fed fund rate. The Bank of Thailand held its 3.25% rate steady yesterday but is expected to reduce the policy rate once more before year-end. Kampol Adsavakulchai, a vice-president of SCBAM, said that when the deposit guarantee law took effect next year, depositors would gradually shift their savings to mutual funds. ''I think depositors will explore new investment alternatives and they will start investing in money-market or short-term bond funds first. When they are familiar with mutual funds, they will expand their investments to equity or foreign investment funds later,'' he said.
This year, SCBAM expects its assets under management to exceed 300 billion baht, up from 170 billion baht at the end of last year. Its total assets stand at 285 billion baht. For long-term equity funds, the company hopes to raise five billion baht this year.

Spending master plan nearly done

Spending master plan nearly done
Bangkok Post (11 October 2007)

The Finance Ministry is finalising a master plan that will outline social spending and tax policies from 2008-12. The master plan would detail on tax policies to support a number of social initiatives, including programmes to strengthen local communities, support the elderly and discourage consumption of alcohol, tobacco. Taweesakdi Manakul, director of specialised financial institutions division for the Fiscal Policy Office, said the final draft was nearly complete following numerous meetings and consultations with community village leaders, academics and senior civil servants from a number of agencies. He told participants at a seminar yesterday on fiscal policy development that the master plan outlined four strategies and 27 initiatives aimed at helping rural communities adapt to social and environmental changes as well as changes in values as a result of globalisation. Self-sufficiency and the pursuit of a knowledge-based society were other principles outlined in the fiscal plan, which also aims to reduce income disparity and promote conservation. Specifics outlined in the plan include skills training programmes, financial aid for education and a revamp of existing ''sin taxes''. Community savings pools and initiatives to encourage home ownership for low-income groups are also outlined in the draft, as well as new tax initiatives to support families and religious institutions. Machima Kunjara Na Ayudhya, a corporate social responsibility adviser for the Stock Exchange of Thailand, recommended that the fiscal plan consider growing concerns voiced about issues such as global warming, wealth creation and quality of life. ''I think when we talk about measures aimed at encouraging people to do good or care for the environment, we need to consider alternatives that are voluntary, not compulsory. People need to understand that the benefits are for themselves and for society,'' he said.

Fund investors set to receive protection

Fund investors set to receive protection
Bangkok Post (11 October 2007)

New law expands deposit insuranceInvestors in local mutual funds or savings co-operatives will also be protected under the new Deposit Insurance Act, according to Krisada Uthayanin, a deputy director of the Fiscal Policy Office. Unitholders in a mutual fund, for instance, would receive compensation as a proportion of the fund's total deposit in a financial institution. Mr Krisada, speaking at a seminar at the Stock Exchange of Thailand, said depositors would have several years to adjust their savings and investment strategies. The new law, currently under review by the National Legislative Assembly, would replace the blanket guarantee on deposits that has been in place since the 1997 crisis. Deposit insurance would drop to 50 million baht in the second year after the law is approved. Then it would fall to 25 million in the third year, 10 million in the fourth year and one million in the fifth year. Mr Krisada said the one-million-baht maximum was per person, per financial institution. ''Also remember that it doesn't necessarily mean that depositors with more than one million baht at a bank will only receive one million. They can receive more once the Deposit Insurance Agency takes control and settles accounts for that financial institution,'' he said. Ruchukorn Siriyodhin, director of the Bank of Thailand's project management office, said the one-million-baht limit would cover 98.57% of depositors in the financial system. Only 700,000 accounts had balances that would not be fully covered by the initial payout, she said. Mrs Ruchukorn said protection under the law was high compared with other countries. Singapore offers deposit insurance of just S$20,000, or 0.45 times per capita gross domestic product, while Hong Kong offers protection of HK$100,000, or 0.49 times per capita GDP. Countries such as the US, Canada, Japan and South Korea offer protection of two to three times per capita GDP. ''Thai coverage is about 8.3 times per capita GDP, ranking only second to Indonesia, which has coverage of 9.42 times per capita GDP,'' Mrs Ruchukorn said. The DIA act would cover baht-denominated accounts opened with both foreign and Thai banks, credit foncier and finance companies, she said. Deposit protection would be expanded to other institutions at a later stage. The new Deposit Insurance Agency would be responsible for paying out deposit insurance and supervising ailing financial institutions. Banks would pay a premium of 0.4% of total deposits to the DIA each year, a similar charge to what is now paid to the central bank's Financial Institutions Development Fund. Premium payments to the DIA are estimated to amount to 20 billion baht annually. Sirimas Watanachoti, a deputy secretary-general of the Thai Bankers Association, said local banks were concerned that all financial institutions, including specialised state-owned banks, would be treated similarly under the new deposit insurance law. ''We are worried about issues of competitive fairness, and how to communicate to depositors effectively to prevent panic withdrawals once the act is implemented,'' she said. The perception that deposits at state banks were safer than those at private banks could distort the market. Bankers are also concerned that insurance premiums do not reflect the different risks of each institution. Mrs Sirimas said financial institutions should not have to subsidise weaker institutions.

Shin Deal Pinthongta’s refusal to testify

Shin Deal Pinthongta’s refusal to testify
Bangkok Post (11 October 2007)

Thaksin's lawyer threatens to sue ASC. Noppadon Pattama, lawyer of ousted prime minister Thaksin Shinawatra, has threatened to sue the Assets Scrutiny Committee (ASC) if it files criminal charges against Pinthongta, Mr Thaksin's eldest daughter, for refusing to testify against her parents. The ASC plans to file legal charges against Miss Pinthongta next Monday after she postponed her testimony three times and again insisted on her right to say nothing on Tuesday when she met the ASC sub-panel investigating alleged irregularities in the Shin Corp share sale to Singapore's Temasek Holdings early last year. She says she does not want to give any evidence which could be detrimental to her parents. ''We did not defy the ASC's summons and we have said that we don't want to give a statement,'' said Mr Noppadon, who is also deputy leader of the People Power party. Miss Pinthongta, who arrived from England to meet ASC members earlier this week, is among those from the Shinawatra and Damapong families who benefited from the profits from the 73-billion-baht sale of Shin Corp to Temasek. She is believed to have made 29.6 billion baht from the deal. However, her assets were later frozen by the ASC.
On Tuesday Miss Pinthongta sent a letter to the ASC, saying she would not give any statement deemed detrimental to her parents, Mr Thaksin and Khunying Potjaman, as it would be ungrateful of her as a daughter to do so. She insisted she had the constitutional right not to give testimony. Her legal team said her reasons were justifiable and Miss Pinthongta had been cooperative with the ASC on other issues. Mr Noppadol said the panel had kept calling Miss Pinthongta to testify without listening to her reasons for not wanting to do so. ''So she now feels she should no longer lend her cooperation [to the ASC],'' the lawyer said. ASC spokesman Sak Korsaengruang said his sub-panel found her reasons unacceptable because she could give a statement without losing any of her rights.

BOT keeps its key rate at 3.25%

BOT keeps its key rate at 3.25%
The Nation (11 October 2007)

Sub-prime crisis remains a concern. The Monetary Policy Committee has kept its policy interest rate unchanged at 3.25 per cent due to improving economic growth and increasing inflationary pressure. But the committee yesterday expressed concern that the US sub-prime mortgage problem could extend longer than expected. Suchada Kirakul, the Bank of Thailand's assistant governor, said the central bank needed to closely monitor the problem because it could have a negative impact on the US economy and other economies and thus affect Thailand's exports. The sub-prime problem, however, had a slight direct impact on the Thai economy, she said. Chakkamon Phasukvanich, permanent secretary at the Industry Ministry, believed the US sub-prime problem would be prolonged but would not lead to a recession. The US government had tried hard to address the problem after the sharp cut in the federal fund rate, while the UK government had injected liquidity to revitalise Northern Rock Bank. "They would not allow the problem to emerge significantly because there has been strong cooperation to solve the problem. The ways in which they addressed the problem have also been efficient," he said. Analysts have said the sub-prime crisis would have a minimal impact on Asia. In fact, capital is likely to flood into the region, resulting in an appreciation of the regional currencies. Some have concerns that the slowdown in the largest global economy would dampen exports to the US and other markets that re-export to the US market. Suchada said the BOT had forecast the economies of trading partners would not slow to lower than previous estimates of 4.6 per cent. An improvement of Asian economies could compensate for the slowdown in the US economy.
The International Monetary Fund has just lowered the world economic growth projection to 4.8 per cent from 5.2 per cent. "It is a tiny downward revision," she said. Moreover, the BOT believes the sub-prime mortgage problem has contributed to Thai commercial banks' credit slowdown. Suchada said they had been more cautious with lending as upside risks have arisen.
The assistant governor said the unchanged policy was a result of an improvement in private consumption over the past few months as export growth remained despite being at a slower pace. Inflation remains low but it has been affected by upward pressure from soaring crude-oil prices, global commodity prices and domestic price adjustments. The figure, however, was expected to be in a predicted range, she said. The BOT has raised its assumption of oil prices at the Dubai market by US$0.80 (Bt27) per barrel from the current estimate of $63.80 but keeps it at $65 a barrel for next year. "Consumers' confidence will become a positive factor on the economy as consumption has gradually recovered and the government's investment would cause a crowding effect on private investment. We have just tried to build up sentiment to encourage domestic demand," she said. She added that the political situation had also created a better picture than previously forecast. Chakkamon said private investment was likely to accelerate next year, as demonstrated by requests for investment promotion from the Board of Investment, and investment plans of vehicle companies such as Ford and Honda. Suchada did not disclose the trend for the policy interest rate, saying the current rate was suitable under acceptable economic growth and inflation. She accepted that the five recent policy-rate reductions had a time lag before feeding into the real economy. However, whether the banks further cut lending rates depends on their rate structure and funding costs. Chakkamon said the BOT should introduce any tool to urge commercial banks to trim their rates, which would ensure efficiency in the policy rate. "The central bank should apply any tools or mechanisms to allow market rates to function sooner or later," he said.

DPC leases network to parent AIS

DPC leases network to parent AIS
The Nation (11 October 2007)

The 1,800-megahertz cellular operator Digital Phone (DPC) has adjusted its role by leasing its network to parent Advanced Info Service (AIS). AIS chief executive Vikrom Sripataks said DPC wanted to avoid high operating costs and fierce cellular-market competition. But it will continue to provide cellular service to its existing 50,000 subscribers, all of whom are post-paid phone users. He said each time subscribers cancelled the service, DPC would return their phone numbers to its concession owner, CAT Telecom. "CAT does not oppose the move, since it still gains a revenue share from DPC," Vikrom said. One of DPC's main expenses is the annual access charge it has had to pay to TOT for connecting different networks via TOT's facilities. AIS, with more than 23 million subscribers, is in need of additional cellular frequency to ease the congestion of its existing 900MHz cellular frequency. In a separate matter, Vikrom said AIS and TOT were in talks on the state agency's plan to take over broadband-Internet service provider Advanced Datanetwork Communication (ADC), in which AIS owns 51 per cent and TOT 49 per cent. Initially, AIS proposed acquiring all of TOT's shares in ADC before TOT made a counterproposal that it wanted to take over ADC. Vikrom said ADC's total asset value was about Bt300 million and that AIS was willing to sell shares to TOT if the state agency offered a reasonable price. AIS owns Super Broadband Network Co, which holds a licence from the National Telecommunications Commission to offer broadband service. It provides wholesale broadband-network leasing services. "We can have Super Broadband offer both wholesale and retail broadband-Internet service if need be," Vikrom said. Super Broadband, which is capitalised at Bt1 million, has planned to spend Bt3.827 billion throughout the 25-year licence period. It will raise Bt450 million in capital in the first year, when it will also borrow Bt690 million to run the business. The company expects cash flow of Bt2.687 billion in the first year.