Thailand Gets a Central Bank Rate Hike

July 14, 2010

Interest rate normalization has begun in yet another Asian economy.  The Bank of Thailand had delayed that decision because of domestic political unrest.  But officials now conclude that any adverse impact on tourism, consumption or investment had been surprisingly mild and temporary.  That’s the message of a statement released today after a 25-basis point increase in the central bank’s one-day repo rate to 1.50%.  That was the first increase since back-to-back 25-bp rises implemented in July and August of 2008.

The Bank of Thailand had been running an “exceptionally accommodative monetary policy” for over two years following cuts of 100 bps in December 2008, 75 bps in January 2009, 50 bps in February and 25 bps in April 2008.  All cylinders of the Thai economy are now firing.  Real GDP shot up 16% annualized in the first quarter and by 12% from 1Q09.  Industrial output is over 17% greater than a year ago.  Today’s released statement notes that officials now project faster 2010 growth than imagined before, and although CPI inflation of 3.2% is acceptably low, the statement observes that such is likely to accelerate in 2011.  At 1.5%, the key interest rate is less than a third as high as the pre-February 2007 peak of 4.75%. Rate normalization has only begun.

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

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