ASEAN KEY DESTINATIONS
Thailand raises interest rates
The overnight bond interest rate now stands at 2 percent after a quarter-point boost yesterday. The move surprised analysts because of weak economic data in October, but they expect the central bank will continue raising interest rates sporadically in 2011.
Local business associations opposed an increase for fears that wider interest differentials with the US would cause the baht to appreciate rapidly.
The baht gained by the most in almost two months yesterday, trading late yesterday at 30.05/06, compared with 30.20/23 on Tuesday.
Paiboon Kittisrikangwan, a central bank assistant governor, said savings incentives, measured by the previous benchmark rate, stood below average price increases by 1.6 percent to 1.7 percent, and this was among the lowest in the region.
"It is not appropriate to have this rate, inflation-adjusted, standing in negative territory. But we will assess the situation and clarity of the environment for our next moves," he said. The central bank's Monetary Policy Committee meets every six weeks with a target to control inflation, excluding food and energy, at 3 percent. Yesterday's decision was the third interest rate increase since July.
Supavud Saichuea, managing director at Phatra Securities, said an appreciating dollar and concerns about the Korean peninsula and the European debt crisis represented a "window of opportunity" for the central bank to increase the interest rate.
"We expected earlier that the BoT would increase the interest rate to a normal level because the economy has returned to normalcy," he said.
Dr. Supavud expected the central bank's move to add appreciation pressure to the baht, increasing the likelihood the central bank invokes a special measure to stem capital inflows in the next year.
"A capital control is needed, given the need for further interest rate increases. I believe the central bank will have a measured response to the inflows," he said.
Jun Trinidad, a Citibank analyst, expected the move in January. Citibank also expects it to increase the one-day repurchase interest rate to 2.25 percent by the end of March.
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