The Bank of Thailand policy signal rate will rise by 100 basis points this year due to inflation pressure but gross domestic product will grow by at least 5 percent, the governor of the central bank said yesterday. MR Pridiyathorn Devakula said the central bank’s Monetary Policy Committee had raised its 14-day repurchase rate by 25 basis points to 2.25 percent at its meeting on March 2. The committee’s next meeting is on April 20.

The interest rate trend this year is absolutely an up-trend. There is a chance it will rise by one percentage point for the entire year, he said. “We already hiked its by 25 basis points and there are six meetings left. But this doesn’t mean a hike in every meeting.” Commerce Minister Thanong Bidiya said diesel price increase would push inflation up by 50-75 basis points, resulting in full year inflation of 3.75 percent.

The Bank of Thailand earlier forecast headline inflation for 2005 at 2.5-3.5 percent, while core inflation was anticipated at 1-2 percent. Core inflation is headline inflation less the volatile food and energy factors.

The Central bank capped its core inflation target at zero to 3.5 percent. Oil price hikes and particularly the government’s decision to raise diesel prices by Bt 3 a litre has put more pressure on inflation.

However, Pridiyathorn said it was still not clear if the Monetary Policy Committee will raise the policy rate at its next meeting. The committee has to consider many factors, particularly rising inflation pressure as well as economic growth. He expects the committee to consider these two factors in a balanced way. The Bank of Thailand chief said he was confident economic growth this year would reach at least 5 percent thanks to income from tourism. He said foreign tourists were expected to come to Thailand despite Monday’s earthquake in Indonesia, which forced many local and foreign tourists in the South to be evacuated from their hotels.

Meanwhile, assistant governor Nitaya Pibulratanagit said yesterday that the central bank had recently “overseen” the baht to prevent it from moving to fast,” she said.

She made her comments after the baht slipped to its weakest level over the past three months at Bt 39.37 to Bt 39.39 yesterday morning.

Nitaya said the unit had not depreciated too much yesterday morning and that its movement would not affect exports and imports at present. The key cause of the weakening was the current rise of the dollar value, which had drawn investors to sell other currencies for the greenback. The baht’s depreciation is also in line with other key currencies. She insisted that capital flows in the Thai market were still “normal”, although foreign investors had recorded a net selling of Thai stocks over the past few weeks. There has been no overall capital outflow as foreign funds are still parked in the local market, she added.

(The Nation, Source)