Thai central bank raises interest rates

The Monetary Policy Committee of the Bank of Thailand on Wednesday raised the policy interest rate by a quarter percentage point to 2.5 percent. The move was widely anticipated in the financial press. The decision was aimed at boosting confidence among the public that the central bank was controlling inflation.

The MPC yesterday revised up the headline inflation rate, which includes oil prices and fresh food items, by 0.5 of a percentage point to 3-5 percent this year. The range of the core inflation rate remained unchanged at 2-3 percent.

The move is contentious as many believe inflation is still within an acceptable range and that the interest rate rise intended to curb those pressures was unnecessary.

Higher interest rates imposed by the central bank will hurt the economy and squeeze businesses, economists and businessmen say.

However, smaller businesses will face higher operating costs as a result.

Core inflation excludes the price of fuel and fresh food items which vary seasonally. The domestic inflation rate which stands at 3 percent so far this year is relatively low compared with other countries in the region, said Prayote Benyasut, acting director of the Bureau of Trade and Economic Indices.

Paiboon Kittisrikangwan, the central bank's assistant governor, said the MPC's decision to raise the policy rate was caused by the surge in oil and commodities prices which has increased inflationary pressure.

The decision was also aimed at boosting confidence among the public that the central bank was controlling inflation.

The MPC yesterday revised up the headline inflation rate, which includes oil prices and fresh food items, by 0.5 of a percentage point to 3-5% this year. The range of the core inflation rate remained unchanged at 2-3%.

The surge in oil and commodity prices will not weigh on the growth prospects of the Thai economy, he said.

The central bank, however, forecasts that if the average price of Dubai crude oil increases to US$120-130 a barrel, the global economy will be affected.

The Bangkok and Kasikorn banks yesterday raised their interest rates on both savings and loans in response to the MPC's policy rate hike.