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Thu, Jun 08, 2006 - Page 10 News List

Rising oil prices force Thai central bank to raise rate

AFP , BANGKOK

The Bank of Thailand raised its key interest rate yesterday by a quarter point to 5 percent, the highest level since 1998, in a bid to tackle inflation sparked by soaring global oil prices.

The rate hike was widely expected after inflation last month hit a seven-month high of 6.2 percent due to high oil prices, which sharply increased costs of energy and public transportation.

"The Monetary Policy Committee [MPC] decided to hike a policy rate by 25 basis points due to ongoing high oil prices," Atchana Waiquamdee, assistant central bank governor, told reporters.

"The main duty of the central bank is to maintain economic stability for sustainable growth," she said, adding the rate increase would take effect immediately.

The figure was yet another piece of bad news for the Thai economy, which faces a slowdown due to high energy costs, stalled exports and weak consumer spending.

But Atchana said the 5 percent interest rate, which marked an eight-year high, was "suitable."

Sukhbir Khanijoh, a senior market analyst at Trinity Securities, disagreed.

"High interest rates will dampen consumer spending and cut corporate profits in the upcoming quarters," Sukhbir said, referring to the second and third quarters.

Consumer spending in April edged up just 0.8 percent from a year earlier, but dropped by 3.7 percent from the previous month, and Thai consumer confidence in April stayed at a four-year low due to rising oil prices.

"The rate hike will hurt consumer spending because commercial banks will soon follow suit," said Sukit Udomsirikul, a senior economist at Siam City Securities.

"With depressed consumer spending and uncertainty over economic growth, companies are likely to suspend new investments," Sukit said.

The National Economic and Social Development Board, the government's think tank, on Monday cut its economic growth forecast for this year to 4.2 percent to 4.9 percent from an earlier estimate of 4.5 percent to 5.5 percent in the face of high oil prices.

The bank said inflation this year would stay between 4 percent and 5 percent, with core inflation, at 2 percent to 3 percent.

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