Third Rate Hike in Thailand

December 1, 2010

The Bank of Thailand’s one-day repo rate was raised to 2.0% from 1.75%.  When rate normalization paused at the prior meeting on October 20 following 25-basis point rate increases at back-to-back meetings on July 14 and August 25, officials stressed global economic and financial uncertainties, but a new statement today claims that those uncertainties lessened subsequently while projecting strong, investment-led economic growth next year that may be associated with intensifying input price inflation.  CPI on-year inflation was at 2.8%, slightly less than its year-to-date average pace of 3.4%.  But with GDP growth likely to average around 8% in 2010, the present “extra-accommodative monetary policy” is no longer needed.

Thai interest rates have shown more ups and downs than in other economies since 2007.  In 2007, the key rate was raised by 25 basis points in February to 4.5% but then reduced in three moves from April to July by a total of 125 bps to 3.25%.  Two 25-bp rate hikes were undertaken in July and August 2008 to a peak of 3.75% before cuts of 100 bps in December 2008, 75 bps in January 2009, 50 bps in February 2009, and 25 bps in April 2009 reduced such to 1.25%.  At 2.0% now, the key policy rate remains 250 bps lower than its early 2007 peak and 175 bps under its August-November 2008 high.  There’s room for more tightening.  The next meeting of the Monetary Policy Committee is scheduled for January 12, 2011.

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

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