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Thailand may hold interest rate on persistent risks |
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10-MAR-2010 Intellasia | Bloomberg |
10 Mar, 2010 - 7:00:00 AM |
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Thailand's central bank may keep its benchmark interest rate at a five-year low as political tensions threaten an economic recovery and prevent it from following neighbour Malaysia in raising borrowing costs.
Protesters plan to gather in Bangkok this week to force prime minister Abhisit Vejjajiva to call an election, raising concerns political unrest will hurt an economy that emerged from a recession last quarter. The central bank has said it will find the right time to raise interest rates to avoid disrupting the recovery even as the need for low borrowing costs has abated.
"We don't expect to see a policy rate hike until the second half of the year," said Sutapa Amornvivat, executive vice president at TMB Bank Pcl in Bangkok. "The central bank will be cautious in policy tightening because the economic recovery has just started. They'll probably wait for a firmer pace of recovery and also a more stable political situation."
Thailand's $261 billion economy, Southeast Asia's largest after Indonesia, expanded 5.8 percent in the three months ended December from a year earlier after contracting for four consecutive quarters. Exports surged 31.4 percent in January and companies including Hana Microelectronics Pcl and Thai Union Frozen Products Pcl have forecast higher sales this year.
Malaysia's Move
Malaysia's central bank raised its benchmark interest rate to 2.25 percent last week, saying it wants to avoid "financial imbalances" after the nation climbed out of a recession in the fourth quarter. Australia and Vietnam have also increased borrowing costs in recent months, while China and India have asked lenders to set aside more reserves to drain excess cash from their economies to avert asset bubbles and fight inflation.
Thailand's inflation isn't yet a concern and pressure to adjust the policy rate "remains low," Bank of Thailand deputy Governor Bandid Nijathaworn said March 2. Consumer prices rose 3.7 percent from a year earlier last month after climbing 4.1 percent in January.
The government predicted last month the economy may grow as much as 4.5 percent this year after contracting 2.3 percent in 2009. The forecast didn't take into account any further street protests or violence, and Finance minister Korn Chatikavanij said February 22 any political unrest that hurts investor confidence may disrupt the recovery.
Thaksin Supporters
Abhisit canceled a planned trip to Australia at the end of this week, when anti-government protesters plan to gather as many as 1 million people in Bangkok. The Cabinet will today consider imposing the Internal Security Act from March 11 to March 23 to control the protests, TNN television station reported yesterday.
The United Front for Democracy Against Dictatorship, whose members wear red shirts and support ex-leader Thaksin Shinawatra, plans to bring supporters from around the country to rallies in different parts of Bangkok from March 12 to March 14.
Since the military ousted Thaksin in a 2006 coup, demonstrations by his supporters and opponents have led to airport blockades, rioting and bombings. Four branches of Bangkok Bank Pcl, Thailand's largest lender, were targeted with grenades on February 27, the day after a court seized $1.4 billion of Thaksin's fortune.
Baht Climbs
The turmoil hasn't prevented the Thai baht from rising, with the currency reaching 32.49 against the dollar yesterday, the strongest level since June 2008. The currency has climbed 1.7 percent this year as evidence Asia is spearheading the recovery from a global recession attracts funds to the region's assets.
"The Bank of Thailand is concerned about higher interest rates attracting capital inflows, which would put more appreciative pressure on the baht and potentially undermine the export recovery," said Matthew Circosta, an economist at Moody's Economy.com in Sydney.
Thailand's currency may strengthen further, buoyed by capital inflows and a current-account surplus, Korn said March 5. The Bank of Thailand is "closely monitoring" the baht and will make sure it remains competitive, he said.
http://www.businessweek.com/news/2010-03-08/thailand-may-hold-interest-rate-on-persistent-risks-update1-.html
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