Thai Monetary Tightening on Hold

October 19, 2011

The Bank of Thailand had previously raised its policy interest rate by 25 basis points each in July 2010, August 2010, December 2010, January 2011, March 2011, April 2011, June 2011, July 2011, and August 2011.  The rate altogether increased from 1.25% to 3.5% between mid-2010 and August 2011.  But for the first time in eight meetings of the Monetary Policy Committee, a decision was made to leave the interest rate unchanged.  Moreover, one of seven policy makers voted in favor of a 25 basis point cut.  Officials consider 3.5% to be an “appropriate” level and are ready “to take appropriate policy actions” to developing “risks.”

Thailand’s headwinds have two sources.  The global economic outlook “has deteriorated markedly.”  Also, Thailand continues to experience its worst flooding in a half-century, which has halted production in some sectors.  Inflation has been sustained by domestic demand.  Consumer prices rose 4.0% in the year to September, with a core rate of 2.9%, which is close to the ceiling of its 0.5-3.0% target range.  But both upstream price pressure and inflation expectations are ebbing.  GDP rose 2.6% in the year to 2Q11, and growth is expected to hover near 4% for this year as a whole as well as 2012.

The Bank of Thailand releases its next quarterly inflation report on October 28 and holds its final interest rate policy meeting on November 30.

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



Comments are closed.