Thai central bank raises rate

Paiboon Kittisrikangwan, an assistant governor, said oil and other commodity prices had continued to increase, while domestic demand and exports have been healthy.

"The rise in inflation in April was higher than expected, following hikes in the prices of prepared foods. The trends also showed that inflation had spread to more varieties of products," he said.

"Inflation expectations continued to edge up. Elevated oil and commodity prices amid robust domestic demand resulted in greater pass-through of high production costs to overall prices." The central bank has increased its policy interest rate by 175 basis points since last July.

Some economists have expressed concern that the central bank's interest rate increase might draw foreign capital inflows and erode export competitiveness.

Mr. Paiboon said inflationary pressure had remained strong to the extent that it may breach the central bank's target for core inflation, excluding volatile raw foods and energy, in a range of 0.5 percent to 3 percent in the third quarter into the fourth quarter despite the 3% policy rate.

He said the 3 percent year-on-year economic growth in the first quarter was better than expected and could finally push up growth for the whole year to higher than the 4.2% rate expected earlier.

Meanwhile, low manufacturing output in April and May due to supply disruptions in Japan was expected to have a minor impact as automotive and electronics producers that rely on components from Japan seek substitutes in other markets.

Citibank economist Jun Trinidad said that given its rate increases totalling 175 basis points since last July, "the MPC remains as hawkish as ever".

"The MPC's prevailing bias and signals appear in sync with the pace of core CPI, which may be at its fastest in this inflation cycle," he said.