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Thailand may raise interest rate as rising wages, oil costs spur inflation


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I found this article interesting, primarily because it talks about Thailands internal economic policies and their relation to the Asian and World markets.

 

The concerning comments come towards the end of the article where it is admitted that although it will almost certainly damage the export market, the baht is predicted to keep strengthening.

Thailand may raise interest rate as rising wages, oil costs Spur inflation

The Bank of Thailand will probably increase borrowing costs for the fourth time in seven months as rising wages and oil prices threaten to stoke inflation.

 

The central bank will raise its benchmark one-day bond repurchase rate by a quarter of a percentage point to 2.25 percent at its meeting tomorrow, according to 18 out of 21 economists surveyed by Bloomberg News. Three expect no change. The decision is due at 2:30 p.m. in Bangkok.

 

Thailand joined neighbors from Malaysia to China in raising rates last year as Asia rebounded from the global recession, pushing labor and commodity costs higher. Inflation accelerated to 3 percent in December and the nation has increased the daily minimum wage as well as the retail price of palm oil this year.

 

“A relatively hawkish central bank and an increase in minimum wages across the country set the stage for another rate hike,” said Rahul Bajoria, a Singapore-based economist at Barclays Plc. “The central bank appears comfortable with growth and expects core inflation to rise.”

 

Onshore interest-rate swaps, the fixed cost needed to receive a floating payment, have risen 38.5 basis points since the central bank last boosted borrowing costs on Dec. 1, indicating growing expectations for higher rates over the next 12 months.

 

Central bank Governor Prasarn Trairatvorakul said in December that borrowing costs that are “too low” may create market distortions and rates should be “normalized” as the economy expands. The finance ministry predicts gross domestic product will grow 4.5 percent this year after increasing an estimated 7.8 percent pace in 2010.

 

Core Inflation

 

The core inflation rate, which excludes fresh food and fuel, climbed to a 21-month high of 1.4 percent in December. That compares with the central bank’s target of keeping the rate under 3 percent.

 

“Inflation is indeed running higher than expected in recent months and will trend higher ahead,” said Ramya Suryanarayanan, an economist with DBS Group Holdings Ltd. in Singapore who expects interest rates to reach 3 percent by mid- 2011. “We expect inflation to stay elevated but manageable as long as the central bank continues to hike rates.”

 

Bank of Thailand Deputy Governor Atchana Waiquamdee said today inflation pressures will increase this year because of higher oil and commodity prices, economic growth and rising wages.

 

Government Salaries

 

“The factors driving up inflation just come from all directions,” Atchana said. “Even though the Commerce Ministry tries to control product prices, it can’t hold them for long. The prices will rise eventually in line with surging costs.”

 

In addition to a higher minimum wage since the start of the year, the salaries of government officials will increase in April. Authorities this month allowed the retail price of palm oil, which is widely used in the food industry, to rise by 23 percent as raw-material costs climb.

 

Still, government subsidies on items from electricity to cooking gas may help contain inflation in the near future, giving the central bank more time before it needs to raise rates further, said Usara Wilaipich, a Bangkok-based economist at Standard Chartered Plc.

 

“The central bank can adopt a wait-and-see approach now,” said Usara, who predicts policy makers will pause rate increases at tomorrow’s meeting. “The economic outlook is still fragile given uncertainties on the global front and upcoming local elections sometime this year.”

 

Risks to Exports

Prime Minister Abhisit Vejjajiva on Jan. 9 outlined measures to help reduce the cost of living for the poor, ahead of an election he must call this year. The government plans to permanently offer free electricity to 9.1 million low-income households, give soft loans to taxi drivers to buy cars and subsidize oil prices.

 

Sovereign credit woes in Europe and a U.S. job market where unemployment has exceeded 9 percent since May 2009 are damping the prospects for global demand after a rebound in the world economy boosted Asian exports last year. Companies including General Motors Co., Ford Motor Co. and Siam Cement Pcl have also said the baht’s strength is a threat to Thai exports, which include cars, rice and electronics.

 

The currency has climbed 8.8 percent since the end of 2009, to 30.60 a dollar today. The baht will continue to strengthen in 2011, Korn said last month.

 

Thai exports, which account for about 60 percent of Southeast Asia’s biggest economy after Indonesia, jumped 28.5 percent in November from a year earlier.

 

Source: bloomberg.com

Publication date: 1/11/2011

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The currency has climbed 8.8 percent since the end of 2009, to 30.60 a dollar today. The baht will continue to strengthen in 2011, Korn said last month.

 

 

If i compare it with the euro, in december 2009 i got like 50 baht for 1 euro, nowadays its like 39.3! And they just say, its gonna continue to strenghen, that doesnt make me happy at all, what have to happen in Thailand that they will option the devaluation of the Baht, eventually it cant keep on going like this..

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I think it was last week that they increased interest rates by 0.25%

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I guess its street food and the coconut bar for me in September.

"Before you criticize someone, you should walk a mile in their shoes. That way, when you criticize them, you're a mile away and you have their shoes." Jack Handey
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I think it was last week that they increased interest rates by 0.25%

 

I have got a small amount of money in a savings account over there so in that respect I am pleased when interest rates increase.

 

I guess its street food and the coconut bar for me in September.

 

At this rate maybe the same for me too...

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