ASEAN KEY DESTINATIONS
Thai rates look firm
The government will use 40 billion baht in fiscal revenue by waiving excise and consumption taxes totaling 5.7 baht a litre to keep diesel at 30 baht until September in order to avoid additional borrowing to cover the Oil Fund's liability.
Yesterday's move prompted further concern among economists over consumer prices in the future as once the extension expires in September, policymakers will face the challenge of deciding yet again whether to adjust the diesel price.
Santitarn Sathirathai, an economist at Credit Suisse, said the government's decision reflects the fact that consumer prices for rural residents and low-income earners are generally higher than the country's average.
The MPC is expected to increase the interest rate by 25 basis points at each meeting until reaching 3.25 percent in August.
It will probably increase the overnight bond repurchase rate further if the global oil price continues to increase after September.
"The risk of inflation is a more pressing issue than economic growth. Prices of farm commodities have increased along with oil, and this will boost domestic consumption," said Dr Santitarn. The next MPC meeting will be held tomorrow, with the policy interest rate now standing at 2.5 percent. Dr. Santitarn said headline inflation of 3.8 percent is expected, assuming the government gradually lifts the diesel subsidy after September.
In March, the headline consumer price index rose by 3.14 percent year-on-year and by 0.5 percent month-on-month. Prices of food items rose by 0.76 percent month-on-month and those of non-food items by 0.33 percent. Core inflation rose by 0.28 percent month-on-month.
"The risk of inflation will elevate. Salary and minimum wage increases will fuel inflation, but we won't see runaway inflation," said Dr. Santitarn.
He said the amount of taxes levied on diesel equals the Oil Fund subsidy, so the waivers essentially add up to stopping the transfer of Oil Fund money to the Finance Ministry.
The central bank will revise its inflation forecast on April 28 while making an assumption that the Dubai oil price will remain above US$92 a barrel.
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