ASEAN KEY DESTINATIONS
Thailand dealing with inflation
Like other Asian countries, the Thai economy will be challenged by inflation. The challenges would mainly come from the country's robust economic recovery, rising commodity prices, global rise in liquidity for commodity futures investment and increasing food prices, Bank of Thailand's former deputy governor Bandid Nijathaworn said.
"Thailand's economic pickup could drive the demand for products and services, pushing prices up, while commodity prices, which are major business costs, are rising from the global pickup. The increase in global liquidity is behind more investment in commodity futures as a hedge against inflation. Also, food prices are on the rise as natural disasters and extreme weather conditions are disrupting production. Now, these engines put pressure on inflation," he said.
As the Thai economy had already gathered a strong pace of recovery last year, Bandid said the fiscal stance needs to initiate an exit strategy from stimulus measures after that was clearly done by the monetary side, which now adopts rate normalisation. Thailand, now, should adopt growth targeting instead, he added.
If more overseas capital flows into the country, the economy will possibly grow on the upside, he said. Domestic politics could be a downside risk due to this year's general election. The central bank estimates the Thai economy to expand 3-5 percent in 2011. The economy is projected to have grown by about 8 percent last year after having shrunk 2.3 per cent in 2009.
The monetary policy should focus specifically on inflation due to its direct impact on the people's cost of living. "It has to be done consistently in advance. The poor will be directly affected by the higher prices," Bandid said. Currently, Thailand has about 9-10 million people, whose daily income is below the World Bank's poverty line.
The central bank started monetary tightening to contain inflation since the start of July 2010, boosting the policy rate to 2.25 percent currently. "The speed of the rate increase will depend on the Monetary Policy Committee's decision on the situation then," Bandid said. Markets expect the rate to rise 75-150 basis points by the end of this year.
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