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Thai central bank raises interest rate up 25 basis points to 3.5%


July 17, 2008

Thai central bank raises interest rate up 25 basis points to 3.5%
The Bank of Thailand (BOT) Monetary Policy Committee (MPC) on Wednesday increased its interest rate by 25 basis points to 3.50 per cent annually with immediate effect to stave off rising inflation in the country, Thai News Agency quoted BoT assistant governor Duangmanee Vongpradhip as saying Wednesday.

The hike in the policy interest rate, the first since last August, had been widely anticipated. The decision was made, according to Duangmanee, after it was found that inflation risks could jump and erode private sector confidence, affect economic growth, and impact export competitiveness if domestic consumption does not improve.

If the policy interest rate is not increased, core inflation could exceed the target of around 0-3.5 per cent, she said. The MPC is prepared to implement stricter monetary policy to curtail inflation if it continued rising, and will adjust the policy interest rate again in its next meeting to control the country's inflation at an appropriate level.

The hike in the policy interest rate came after inflation in June surged 8.9 per cent, somewhat higher than the 8.5 percent forecast earlier by many analysts. It was the highest level in almost a decade.

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Kasikorn Research Center has forecast that Thailand's inflation is likely to exceed 9 per cent in July and penetrate the double-digit 'ceiling' in August due to the continued increase in consumer product prices fueled by relentlessly rising fuel prices.

Core inflation in June also soared 3.6 percent, Thailand's highest in almost 10 years. It was also the first time the rate stayed above the inflation target range of 0-3.5 percent set by the central bank.

"The increased inflation has negatively affected several factors, especially people's saving, eroding consumer and investor confidence and the MPC must closely monitor to make sure that inflation stays at an appropriate level," Duangmanee said.

Besides rising inflation, real deposit and lending interest rates contracted 6.6 and 1.65 percent respectively.

The liquidity of commercial banks is still ample, she added, and lending is not a problem.

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