Thailand Monetary Policy Not Changed This Time

October 20, 2010

The program of interest rate normalization, as at some other regional central banks, was paused in Thailand, but a statement accompanying today’s decision to leave the one-day repo rate at 1.75% said more rate hikes would be coming and attributed today’s decision to greater uncertainty surrounding global economic and financial prospects since the previous policy meeting in August.  At that August meeting and a meeting on July 14, the key interest rate was increased by 25 basis points.  It had been at a low of 1.25% since April 2009 after four cuts totaling 250 basis points between December 2008 and April 2009.  Today’s statement said Thailand shares Asia’s robust economic growth and that the inflation outlook is unchanged despite a somewhat lower 12-month CPI advance of 3.0% in September than what occurred earlier in the summer.  Real GDP was 9.1% higher in 2Q than a year earlier, and industrial production posted a 12-month advance of 8.7% in August.  The previous Bank of Thailand statement on August 25 had warned that inflation may poke temporarily above target sometime in 2011.  Conspicuously, today’s statement omits any complaint about baht appreciation.  Thailand’s currency earlier this month touched its highest level against the dollar since early in the 1997-98 Asian debt crisis, which had been been triggered by a baht devaluation on July 1, 1997.  The baht is presently up 11% on the U.S. currency this year. 

Analysts had expected a pause in Thai interest rate normalization this month in order to alleviate upward pressure on the exchange rate.  The next policy meeting is scheduled for December 1st.

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



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