Thai Inflation Rate May Remain High as Economic Growth Slows
Thailand's inflation rate may remain “elevated for a while,'' underscoring the central bank's vigilance on price gains amid signs economic growth is slowing, central bank Governor Tarisa Watanagase said.
Surging oil and food costs last week forced Thailand to join nations from Vietnam to Pakistan in raising borrowing costs, even as declining consumer confidence amid protests against the five-month old government erodes growth. The baht is close to its lowest this year, increasing import costs, and fanning inflation to the fastest pace in a decade last month.
“We still have room to raise the rate because the current rate is low,'' Tarisa said tonight, speaking at the Foreign Correspondents' Club of Thailand.“Inflation is a monetary phenomenon and should be corrected by monetary policy.''
The Bank of Thailand on July 16 raised its one-day bond repurchase rate by a quarter percentage point to 3.50 percent, and said further increases are possible. Consumer prices rose 8.9 percent last month, the highest rate in a decade.
“Our real deposit rate is minus 6.6 percent and the real lending rate is minus 1.6 percent,'' Tarisa said. “Both are obviously bad for the economy because no one will want to save and that can have long-term implications if you let it persist for too long.''
Many central banks in the region are “behind the curve'' on monetary policy, the Asian Development Bank said this week.
Slowing Growth
Finance Minister Surapong Suebwonglee said July 14 that the South-east Asian nation's economic growth may trail his 6 percent target in the second half of this year because of higher oil costs. Thailand imports almost all its crude oil, the price of which has climbed 30 percent in New York this year fast cash advance. The economy expanded 4.8 percent in 2007.
“The economy will be less robust in the second half,'' Tarisa said. “Inflation is eroding the price-competitiveness of exports, which is perhaps only growth engine now.''
Shipments abroad grew an average 23.3 percent a month in the first half of this year, from 18.6 percent a year earlier, according to Commerce Ministry data.
“Our monetary policy stance now can be either neutral or tightening,'' Bank of Thailand Assistant Governor Atchana Waiquamdee said earlier today. “If we have to choose, we must choose stability over growth.''
Thailand's currency is the worst performer in Asia over the past three months, sliding 5.6 percent versus the dollar, as anti-government protests led to investor flight.
Anti-Government Protests
Street protests have called for Prime Minister Samak Sundaravej's ouster, portraying him as a stand-in for former Premier Thaksin Shinawatra, deposed in a 2006 coup. Consumer confidence dropped for three consecutives months to the lowest level this year in June, the most recent reading.
The government last week said it will cut excise taxes for fuel, offer free electricity and water to low-use households, and waive fares for cheap bus and train seats in a six-month, 46 billion baht ($1.37 billion) program, to bolster support and ease inflation.
“The government's program may help trim inflation in the short-term,'' Nuchjarin Panarode, an economist at Capital Nomura Securities Pcl, said in a telephone interview. “But, inflation will continue and the central bank will need to raise the rate further.''
Filed under: finance by Specialist