Hawkish Statement From the Bank of Thailand

March 10, 2010

The Bank of Thailand left its benchmark interest rate at 1.25%, the level since a 25-basis point cut last April 8.  Prior cuts of 100 bps, 75 bps, and 50 bps had been implemented in December 2008, January 2009 and February 2009.  A considerably more hawkish statement from monetary authorities today sets the stage for a rate hike at the next Monetary Policy Committee (MPC) meeting on April 21.  Analysts had previously been targeting June 2nd for the onset of tightening.

Today’s statement observes a reduced downside risk to growth and declares that such “has significantly lessened the need for exceptionally accommodative monetary policy at present.”  Officials go on to warn that they “will consider adjusting the policy interest rate to more normal levels in the period ahead.”  After the prior MPC meeting on January 13, the MPC deleted saying that policy remained appropriate as they’d done routinely before, predicted higher inflation in 2010 and promised to continue to closely monitor inflation and economic developments.  When the last meeting of 2009 was finished on December 2, the MPC had called policy “appropriate” after observing somewhat slower growth in 3Q09 and October and merely said that future developments would be monitored.  So there has been a progressive evolution of thinking over the past three and a half months toward a readiness to start tightening interest rates.

The backdrop to this metamorphosis was greater-than-expected GDP growth at an annualized pace of 15.3% last quarter, on-year growth then of 5.8% from 4Q08, continuing rapid activity in January when industrial production was 28.6% greater than a year before, and higher on-year CPI inflation of 3.7%, fueled by food and energy cost pressures as well as reduced government subsidies.  Thailand’s current account surplus runs about 4% of GDP, and the baht is about 10% stronger against the dollar than a year ago.

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.

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