ASEAN KEY DESTINATIONS
Interest-rate hike may sink under inflows
The central bank's Monetary Policy Committee (MPC) has become increasingly concerned about foreign capital inflows as the economy has failed to grasp their benefit. The inflows have lifted the baht by 11 percent against the dollar so far this year, the largest gain in the region after the Japanese yen.
Analysts expect the interest-rate gap between the US and developing regional economies to widen, with the US Federal Reserve indicatingit might renew its plan to inject liquidity into the private sector.
That statement combined with the worsening trend of the US economy, has caused the US interest rate to continue to fall, with yields on 10-year treasury bills slipping below 0.5 percent.
Steady net gains in trade and services in Thailand have also drawn investment on expectation of continued baht strength. The total balance of payments surplus through August was US$18 billion, of which $6.6 billion was from the current account.
The baht yesterday continued to gain, trading at 29.88/92 against the dollar, up from 29.98/30.00 on Tuesday.
Santitarn Sathirathai, non-Japan Asia economist at Credit Suisse, said a wide interest-rate gap and better growth prospects in the region would continue to attract capital inflows.
A continued trade surplus and the underperforming local market are also the factors prompting investors to shift funds to gain from the strengthening trend of the baht.
Wellian Wiranto, Asian economist at HSBC, also said the MPC was likely to raise its rate one more time to 2 percent to curb the upward pressure on prices, and maintain it throughout next year.
"The local interest rate is very low compared to regional countries. There is room for the Bank of Thailand to hike the rate one more time," he said. "The interest rate increase would aim at curbing inflation expectations. But it would be a mistake to think that inflation would be too high in the next year."
Meanwhile, Suchada Kirakul, a central bank assistant governor, said it might introduce more measures if the baht appreciation is too rapid.
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