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Thai central bank to rethink monetary policy


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August 16, 2008

Thai central bank to rethink monetary policy
Thailand’s central bank signalled on Friday that it may reconsider its stance on the need to tighten monetary policy to fight inflation.

Reuters quoted the Bank of Thailand (BoT) Governor Tarisa Watanagase as saying that Thailand might not have to tighten further if inflationary pressures eased.

The annual inflation rate, which hit a 10-year high of 9.2 percent in July, may not reach double-digits after a recent sharp fall in oil prices, she told reporters.

"If inflation pressures eased, monetary policy may not need to be tightened further," she said.

"But in any case, we need to watch inflation as oil prices are very volatile and it is still not certain that we will switch to easing," the governor said.

The comments came a day after she met Finance Minister Surapong Suebwonglee and other officials to review the economy.

Surapong and other government officials have disagreed with the BoT's hawkish policy to combat oil-fuelled inflation by raising rates, fearing it would impede economic grow.

The central bank's rate-setting Monetary Policy Committee (MPC) said in mid-July, when it raised its key rate by 25 basis points to 3.50 percent, that more rate rises would be needed if inflation showed no signs of abating.

The rate rise was the first in two years.

"As oil prices have come down quite a lot and recent state subsidies have helped ease inflationary pressures to some extent, the chances of inflation hitting double-digits in some months are diminishing," she said.

"But we still need to monitor both domestic and external factors very closely."

The central bank has forecast that inflation would average 7.5-8.8 percent in 2008, up from just 2.3 percent in 2007.

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