Thailand Raises Interest Rate for First Time Since 2008 as Risks Subside
Thailand’s central bank raised its benchmark interest rate for the first time in almost two years after deadly political protests ended last quarter without derailing the economy.
The Bank of Thailand increased the one-day bond repurchase rate by a quarter of a percentage point to 1.5 percent after keeping it unchanged in the past nine meetings, it said in Bangkok today. The decision was predicted by 13 out of 19 economists surveyed by Bloomberg News.
Thai consumer confidence rose for the second straight month in June even after the nation’s worst political violence in almost two decades killed 89 people in April and May. The central bank said it expects inflationary pressure to rise next year with “robust economic expansion,” as counterparts from Malaysia to Taiwan boost borrowing costs amid an Asian rebound.
“The Bank of Thailand is confident about the economic outlook, driven by the export sector, in raising the rates,” said Tohru Nishihama, an economist at Dai-ichi Life Research Institute Inc. in Tokyo. “They also seem to be taking preemptive action amid concern inflation will accelerate in the future.”
The baht rose 0.1 percent to 32.32 per dollar at 3:51 p.m. today. The currency has gained less this quarter than the currencies of Singapore, South Korea and Malaysia, where central banks tightened monetary policy earlier.
Swaps, Bonds
Thailand’s interest-rate swaps and bond yields have climbed as investors boosted bets the central bank will increase borrowing costs. The one-year onshore swap rate rose 30 basis points this month to 1.68 percent today, the highest since April 9. The yield on the 5.25 percent debt maturing in July 2013 has climbed 27 basis points to 2.7 percent, according to the Thai Bond Market Association. A basis point is 0.01 percentage point.
“The economy has strengthened, so it’s time to start adjusting the rate to normal levels,” Bank of Thailand Assistant Governor Paiboon Kittisrikangwan told reporters in Bangkok today. “This is the start of the cycle for the interest rate to move in a new direction.”
Overseas sales helped Thailand weather two months of anti- government protests that hurt tourism and disrupted manufacturing at some factories. The Cabinet on July 6 extended emergency rule in a quarter of the country, including Bangkok, for another three months after using troops to disperse opposition protesters in May.
Exports Surge
Thailand’s $272 billion gross domestic product grew 12 percent in the first three months of this year, the most since 1995, as the global recovery spurred overseas orders. Exports rose 42.5 percent in May, the biggest gain since July 2008, and the central bank said today economic expansion may be “higher than previously anticipated” after the protests had a “limited” impact.
Automakers Ford Motor Co., General Motors Co. and Mitsubishi Motors Corp. announced plans to build new factories or expand production in Thailand in the past month.
“Higher interest rates from a low level won’t affect demand,” said Prasert Taedullayasatit, chief operating officer of Pruksa Real Estate Pcl, Thailand’s biggest publicly traded property developer. “There is high demand for residential properties with the economic rebound. ”
Thailand’s central bank raised its benchmark rate from the lowest level since July 2004. Malaysia last week raised its overnight policy rate for a third time this year to 2.75 percent. South Korea, Taiwan and India have also increased borrowing costs as their economies strengthened.
State Subsidies
Thai consumer price gains slowed to 3.3 percent in June, while core inflation, which excludes fresh food and fuel, cooled to 1.1 percent, staying below the central bank’s target of less than 3 percent. The bank has said state subsidies for transport and fuel were masking price increases, and inflationary pressure may rise in the second half of the year as the economy recovers.
While the strength of the global economy may falter in the second half of 2010 as many governments start to withdraw stimulus policies, the Bank of Thailand said it doesn’t expect a double-dip recession.
“Thailand’s export upswing could still falter if the global recovery deteriorates, but such fears are fading,” Matthew Circosta, an economist at Moody’s Analytics in Sydney, said in a note yesterday. The central bank “should feel confident” after Malaysia, Taiwan and South Korea, which are also export-dependent, increased their borrowing costs recently, he said.
To contact the reporters on this story: Suttinee Yuvejwattana in Bangkok at Suttinee1@bloomberg.net
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