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Thai central bank ups rates to 3.75%


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August 28, 2008

Thai central bank ups rates to 3.75%
The Bank of Thailand raised interest rates 25 basis points to 3.75 percent Wednesday in a bid to tame soaring inflation, despite government concern about the impact on
slowing economic growth.

The move came in the wake of reports that the bank and the finance ministry have been at loggerheads over borrowing costs, and against a background of political
uncertainty in one of Southeast Asia's biggest economies.

Bank of Thailand assistant governor Duangmanee Vongpradhip said economic growth had slowed in the second quarter to an annual rate of 5.3 percent due to waning
domestic demand, lower government spending and high inflation.

Thai inflation reached a decade high of 9.2 percent in July, but Duangmanee said interest rates were now at the right level.

"This is the appropriate level that can anchor inflation expectations," she said in a statement.

"Lower oil prices and the effect of the government's anti-poverty measures have reduced inflationary pressure," she said, but added inflation was still expected to
remain relatively high given the volatility in world oil prices.

Economists now expect the central bank to leave rates unchanged for the rest of the year as oil prices have fallen back from record levels hit in July.

The bank had "sent the signal that it has taken care of inflation and has curbed inflation expectations," Thanomsri Fongarunrung, an economist at Phatra Securities, told Dow
Jones Newswires.

"The hike today is to prevent second-round inflation effects. The bank may be criticized by some parties, but this hike is not going to hurt economic growth."

Meanwhile, political instability continued to blight the administration as thousands of  protesters besieged Government House and other ministries Wednesday, seeking Prime Minister Samak Sundaravej's resignation.

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