Thailand May Hold Rates as Asia Gauges Risks From China to Oil

International Monetary Fund Deputy Managing Director Zhu Min
Zhu Min, deputy managing director of the International Monetary Fund (IMF), said China is “heading for a soft landing.” Photographer: Nelson Ching/Bloomberg

Thailand and Taiwan may keep interest rates unchanged this week as Asian policy makers gauge the extent of a growth slowdown in China that’s adding to challenges posed by the European crisis and rising oil prices.

Thailand will hold its benchmark one-day bond repurchase rate at 3 percent tomorrow, according to 19 of 21 economists surveyed by Bloomberg News, with two predicting a third consecutive cut to 2.75 percent. Taiwan may leave the discount rate on 10-day loans to banks at 1.875 percent on March 22, all 10 economists in a separate survey said.

Central banks from Australia to South Korea refrained from cutting rates this month as higher energy costs boosted inflation risks, reducing the scope for monetary stimulus to counter a Chinese slowdown and Europe’s slump. International Monetary Fund Deputy Managing Director Zhu Min said yesterday that China is “heading for a soft landing,” while a report last week showed an improving U.S. labor market.

“Regional central banks mostly are still in this wait-and-see mode,” said Sylvia Chiu, an economist at SinoPac Financial Holdings Co. in Taipei. “Although the economic outlook is getting better as the U.S. economy is slowly coming out of the woods, it’s still uncertain whether it’s strong enough to drive a rebound in exports in Asia.”

Chinese Demand

A weakening in Chinese demand would hurt Taiwan’s growth, while surging oil prices would risk igniting inflation, she said.

The Taiwan dollar has strengthened more than 2 percent this year, while the Taiex index of stocks has risen almost 14 percent. The Thai baht, which was the worst performer after the Indian rupee last year among major Asian currencies, has also gained more than 2 percent this year, while the SET index has climbed 16 percent.

IMF head Christine Lagarde on March 18 cautioned policy makers against a false sense of security, highlighting elevated oil prices, debt levels in developed nations and the risk of slowing growth in emerging markets.

The worst floods in almost 70 years and Europe’s sovereign-debt crisis have hurt Thai manufacturing and exports, and Bank of Thailand Governor Prasarn Trairatvorakul said last week there are no plans to raise rates now, as the central bank isn’t too concerned about inflation. The monetary authority may revise its 2012 growth forecast to 6 percent from an earlier prediction of 4.9 percent after a slower-than-expected expansion last year, Deputy Governor Suchada Kirakul said last month.

‘More Neutral’

“Many Asian central bankers can afford to be more neutral now from a very easing bias earlier,” said Santitarn Sathirathai, a Singapore-based economist at Credit Suisse Group AG. “Rising oil prices may not be a serious issue now, but central bankers always need to be forward looking.”

Weaker exports and consumer spending may also hurt Taiwan’s expansion this year, central bank governor Perng Fai-nan said last week. The statistics bureau on Feb. 22 revised its GDP forecast for 2012 to 3.85 percent from an earlier projection of 3.91 percent, and said inflation this year may be 1.46 percent, compared with a previous estimate of 1.29 percent.

Still, there are signs of a recovery in demand for the island’s exports, which account for more than two-thirds of its gross domestic product. Overseas shipments jumped 10.3 percent in February from a year earlier, after declining 16.8 percent the previous month, dragged lower by the Lunar New Year holiday.

“We should see a pickup in exports as soon as this month,” said Aidan Wang, chief economist at Yuanta Securities Investment Consulting Co. “If the road to recovery is as smooth as we expect, the central bank may start raising rates in the third quarter.”

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