Jan. 18 (Bloomberg) -- Thailand's central bank raised its benchmark interest rate for the 10th time in 17 months to curb inflation and boost savings. The currency and bonds rose.

The Bank of Thailand increased its 14-day bond repurchase rate by a quarter-point to 4.25 percent, Assistant Governor Atchana Waiquamdee told reporters in Bangkok today. That's the highest since the bank adopted an inflation-targeting policy in May 2000 and equals the Federal Reserve's target rate. The move was predicted by all 11 economists in a Bloomberg survey.

Central bank Governor Pridiyathorn Devakula has said interest rates will rise until they exceed inflation, which was 5.8 percent in December. The bank's monetary policy committee, which has more than tripled borrowing costs by adding 3 percentage points since August 2004, may be close to ending its tightening cycle as inflation is slowing, economists said.

Consumer prices will probably rise ``at a slower rate from the second quarter, bringing an end to this tightening cycle,'' said Nuchjarin Kasemsukworarat, an economist at SCB Securities Co. Ltd. in Bangkok. She expects the benchmark rate to peak at 4.5 percent by March or April.

Five out of seven economists who provided a 2006 forecast in the Bloomberg survey expected the benchmark interest rate to peak at 5 percent this year. One economist forecast a maximum of 4.5 percent and another 4.75 percent.

Thailand's inflation rate has slowed from an October peak of 6.2 percent, and 5.9 percent in November, the commerce ministry said Jan. 4.

`Inflation Slowing'

Interest rates are still 1.17 percentage point below the inflation, ``but that does not mean we will have to raise the repurchase rate by that much,'' Assistant Governor Atchana said. ``Commercial banks are also raising their rates, and inflation is slowing down.''

The central bank calculates the gap between interest rates and inflation by comparing the 12 month deposit rate to its 12 month inflation forecast.

Thailand's currency extended its gains after today's rate decision ended a yield advantage that has favored dollar- denominated assets. The baht rose 0.8 percent to 39.41 against the dollar as of 4:45 p.m. in Bangkok.

Local-currency bonds rose. The price of the 5 percent government bond due in December 2014 rose 0.1719 to 97.2799. Its yield fell 2 basis points, or 0.025 percent, to 5.39 percent as of 4:30 p.m. in Bangkok, according to prices from Deutsche Bank AG. Bond yields move inversely to prices.

Bonds, Stocks

Stocks pared some of their earlier losses following the rate decision. The benchmark SET Index closed 1.9 percent lower at the 4:30 p.m. close in Bangkok.

The central bank's concerns about core inflation, which excludes food and energy costs, have eased. Core inflation rose 2.6 percent in December from a year earlier, accelerating from 2.4 percent in the previous month. The central bank aims to keep core inflation below 3.5 percent.

``The risk that core inflation may exceed the policy range is decreasing,'' Atchana said today.

To help slow inflation the government has expanded price controls for items considered essential. In September the commerce ministry added 30 products, including salt, mixed concrete and white noodles, to its list of goods whose producers need its permission before raising prices, increasing the number of products on the control list to 150 items.

``We see a downward trend in inflation but we don't know if it has peaked,'' said Naravadee Jaijongkit, who helps manage the equivalent of $1.2 billion in equities at ING Mutual Funds Management (Thailand) Co. in Bangkok. ``The market maybe expects a few more rate hikes.''

Oil, Jobs

Higher energy costs and jobs growth may nudge Thailand's inflation rate higher in the first quarter before retreating in the second, economists including Thanyalak Surapol said.

Crude oil futures have risen 9.4 percent in New York this year following a 41 percent gain in 2005. Thailand's November jobless rate fell to 1.2 percent, the lowest in almost five years.

The central bank ``still has reason to push its benchmark rate higher,'' said Thanyalak of Kasikorn Research in Bangkok.

The central bank's recent moves to keep the baht from rising too quickly may be a sign that concerns about inflation have eased, and it may be close to ending its interest-rate tightening cycle, analysts Supavud Saicheua and Thanomsri Fongarunrung said.

The central bank on Jan. 9 said it had ``stabilized'' the baht to prevent excessive gains, as foreign investors bought 45 billion baht more Thai shares than they sold in the first four trading days of 2006. The baht has advanced 4 percent this year.

Currency Strength

Moves to curb the baht's gains ``support our view that inflation is almost off the radar screen,'' Supavud and Thanomsri of Phatra Securities Pcl said in a Jan. 16 note to clients.

Thai banks increased lending and deposit rates ahead of today's benchmark decision.

Siam Commercial Bank Pcl, Thailand's fourth-largest lender, on Jan. 11 increased deposit and loan rates by as much as 50 basis points. Bangkok Bank Pcl, Thailand's biggest lender, and Kasikornbank Pcl, No. 3, this week raised their minimum lending rates by a quarter point to 6.75 percent this week.

Higher borrowing costs may discourage consumers from taking out loans and increases in deposit rates encourage people to save.

Southeast Asia's second-biggest economy is forecast by the National Economic and Social Development Board to have expanded 4.7 percent in 2005. The economy grew 6.1 percent to $164 billion in 2004.

To contact the reporter on this story: Beth Jinks in Bangkok at bjinks1@bloomberg.net

Last Updated: January 18, 2006 05:10 EST