Thailand Gets Ninth Central Bank Rate Hike

August 24, 2011

The Bank of Thailand raised the one-day bond repurchase rate to 3.5% from 3.25% as most analysts had predicted.  From a cyclical low of 1.2% prior to mid-2010, rate increases of the same magnitude were implemented in July, August, and December of 2010 and January, March, April, June, and July of this year.

The written statement accompanying today’s action has a hawkish tone, predicting strong growth in domestic demand, observing rising expected inflation and attributing both to stimulative fiscal policy changes by Thailand’s new government elected in early July.

The MPC judged that, despite increased risk on growth emanating from risks on global growth compared to the previous meeting, the Thai economy retained its growth momentum but with heightened risks to inflation, together with a sub-normal policy rate.  The MPC deemed it appropriate to continue policy rate normalization to contain inflationary pressure. The MPC therefore decided with a 5-2 vote to raise the policy interest rate by 0.25 per cent, from 3.25 to 3.50 per cent, effective immediately. The MPC will closely monitor global economic developments and inflationary pressure and stands ready to take necessary action to ensure sustainable growth for the Thai economy.

Nonetheless, clues were dropped that the central bank may not raise its key interest rate much further and could pause the tightening cycle for a while.

  • Today’s vote drew two dissents against tightening unlike the unanimous previous decisions including that on July 13.
  • A monetary official speaking after the meeting said the rate level is getting close to a desired setting.
  • The statement conceded that the greater downside growth risks among advanced economies would likely curb demand partly for Thai exports.

The two remaining scheduled interest rate announcements in 2011 will be made October 19 and November 30.  The next quarterly inflation report is due on October 28th.  On-year CPI inflation exceeded 4.0% in April, May, June and July when such stood at 4.1% with a core inflation rate of 2.6%.  GDP growth in 2Q11 was dampened by Japanese supply chain disruptions, and such is likely to advance less than 4.0% in 2011 as a whole.

Copyright 2011, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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