Thailand raised its benchmark interest rate for the fourth time in seven months and signaled it will boost borrowing costs further to contain inflation, spurring gains in the country’s currency.
The Bank of Thailand increased the one-day bond repurchase rate by a quarter of a percentage point to 2.25 percent, it said in Bangkok yesterday. The decision was predicted by 18 out of 21 economists surveyed by Bloomberg News. Three expected no change.
“Inflationary pressure going forward is still expected to increase as the economy continues to grow and oil and commodity prices are on an uptrend,” Bank of Thailand Assistant Governor Paiboon Kittisrikangwan said at a news conference in Bangkok yesterday.
The central bank will continue with its so-called rate normalization efforts, he said.
Thailand joined neighbors from Malaysia to China in increasing rates last year as Asia rebounded from the global recession, pushing labor and commodity costs higher. The baht extended gains from earlier yesterday after the central bank led regional counterparts in tightening monetary policy this year.
“Inflationary pressure will continue to rise and if they want to fight it, they have to do it before” price gains peak, said Pornthep Jubandhu, senior economist at Siam Commercial Bank PCL in Bangkok. “The rate will still go up this year and we think increases would come in the first half of the year, basically because currently the baht is not so strong, giving the Bank of Thailand the option to raise rates.”
Onshore interest-rate swaps, the fixed cost needed to receive a floating payment, have risen 36 basis points since the central bank last boosted borrowing costs on Dec. 1, indicating growing expectations for higher rates over the next 12 months.
Policy makers at yesterday’s meeting voted unanimously to raise interest rates, Paiboon said. This is the first time the central bank revealed how many of the monetary policy committee’s seven members voted for and against a decision after adopting inflation targeting in 2000. Thailand will begin this month to release minutes from the meeting two weeks after the decision, he said.
“The central bank remains more concerned over inflation risks,” Lim Su Sian, a Singapore-based economist at Royal Bank of Scotland Group PLC, said before the decision.
Central bank Governor Prasarn Trairatvorakul said in December that borrowing costs that are “too low” may create market distortions and rates should be “normalized” as the economy expands. The finance ministry predicts GDP will grow 4.5 percent this year after increasing an estimated 7.8 percent pace last year.
“We don’t see any clear sign of asset-price bubbles, but we are still concerned because the real interest rate remains in the negative area even after this increase,” Paiboon said.
Inflation accelerated to 3 percent last month and the core inflation rate, which excludes fresh food and fuel, climbed to a 21-month high of 1.4 percent. That compares with the central bank’s target of keeping the core rate under 3 percent.
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