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Sat, Jun 14, 2008 - Page 10 News List

Bank of Thailand warns of double-digit inflation

NOT ALONE In India, inflation has hit its highest level in years, prompting forecasts of monetary tightening and pressuring the government as elections loom


Thai construction workers handle steel for the foundation of a new major hotel, condominium and shopping complex in Bangkok yesterday. Construction is booming, but many fear a bubble in the market. The chance of failure for condominium developers in Bangkok has grown to almost 50 percent as competition heats up, a report by consultancy Aquarius said this week.


Thailand could face double-digit inflation this year as increased consumer spending was causing strong inflationary pressure, the Bank of Thailand said yesterday.

“The speeding up of consumer spending may pressure the country’s inflation rate to surge to two digits,” central bank Governor Tarisa Watanagase told reporters.

“It’s still uncertain whether a recession will occur. But it is becoming necessary [for the central bank] to take a closer look at inflation,” Tarisa said.

She said that the central bank would not cut interest rates because such a move would worsen inflation.

The central bank has kept the country’s interest rate steady since July last year, when rates were lowered by a quarter-point to 3.25 percent to curb the strengthening baht.

Thailand’s inflation rate jumped to a 10-year high of 7.6 percent last month as soaring fuel prices pushed up costs in food and other sectors.

The finance minister announced in late April that he would raise the inflation target for this year to between 5 percent and 5.5 percent from between 3 percent and 3.5 percent because of soaring oil prices.

Separately, India’s inflation has hit its highest level in more than seven years, data showed yesterday, prompting forecasts of more monetary tightening and piling pressure on the government as elections loom.

Annual inflation in Asia’s third-largest economy rose to 8.75 percent for the week ended May 31, the highest since February 2001, from 8.24 percent a week earlier, according to the Wholesale Price Index, the most watched Indian cost tracker.

The increase, driven by higher prices for food, vegetables and manufactured goods, stoked expectations of further monetary tightening by India’s central bank.

“They will try to anchor reduce inflationary expectations,” said Dharma Kriti Joshi, principal economist at Crisil credit rating agency.

The Reserve Bank of India hiked its leading lending rate two days earlier by a quarter percentage point to 8 percent, a six-year high, after twice boosting the cash reserve ratio — the percentage sum commercial banks must keep on deposit in a bid to check inflation-fueling credit growth.

The latest inflation jump exceeded analysts’ expectations that the rate would be approximately 8.3 percent.

Analysts expect inflation to rise further in coming weeks to double-digits following last week’s sharp hike in state-set fuel prices aimed at stemming huge losses at publicly owned oil firms because of surging global crude costs.

The Congress party-led coalition government is desperate to tame inflation, fearing a voter backlash over prices in national elections looming by next May.

Congress has already suffered a string of state poll defeats with increasing prices, which have hit India’s poor masses hardest, cited as a key factor.

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