Thailand Holds Key Rate a Second Time as Outlook Improves

Thailand kept its policy interest rate unchanged for a second straight meeting on signs of an improving outlook for exports and strengthening domestic demand.

The Bank of Thailand held its one-day bond repurchase rate at 2.75 percent, it said in Bangkok today, as predicted by all 22 economists in a Bloomberg survey. The decision was unanimous, and forecasts for growth last year and this year will be revised upward after a better-than-expected expansion in the fourth quarter, the monetary policy committee said.

Prime Minister Yingluck Shinawatra’s government has extended subsidies, raised minimum wages and increased infrastructure investments to shield growth after the floods of 2011. While weakness in Europe and Japan persist, there is a broad-based recovery in Thai exports and the performance of Asian economies has turned positive, the central bank said today.

“The unanimous decision confirms our view that the easing cycle in Thailand has drawn to an end,” said Wee-Khoon Chong, a strategist at Societe Generale SA in Hong Kong. “There seems to be no change in their view on the strong domestic demand and benign inflation. The BOT’s focus in the near-term will be on the potential impact of volatile capital flows.”

The Thai baht rose 0.2 percent to 30.38 per dollar as of 3:01 p.m. in Bangkok today, approaching a 10-month high. The benchmark Stock Exchange of Thailand index gained 0.6 percent, having surged 36 percent in 2012.

Below Target

Thai inflation accelerated to a 13-month high in December as subsidies failed to counter rising prices of food and fuel. The central bank, which unexpectedly reduced borrowing costs in October, uses core inflation to guide policy and expects price gains will stay below its target of 3 percent this year.

Exports increased the most in 15 months in November and manufacturing output climbed 83 percent from a year earlier as demand improved and factories returned to full capacity. Automakers Nissan Motor Co. and Toyota Motor Corp. stepped up production as tax incentives for first-time buyers boosted sales.

Asian nations loosened fiscal or monetary policies last year to shield growth from Europe’s sovereign-debt crisis, with China lowering borrowing costs, while the Philippines and Malaysia increased spending. Bank Indonesia will probably hold rates for an 11th meeting tomorrow, a Bloomberg survey showed.

“With remaining uncertainties in the global economy and inflation forecast within target, the current monetary policy stance is appropriate in supporting domestic demand to sustain growth momentum,” Assistant Governor Paiboon Kittisrikangwan said today. The central bank said it will monitor the impact of a second round of increases in the minimum wage and financial-stability risks that may arise from “persistently high credit growth, rising household debt and volatile capital flows.”

Gross domestic product likely rose “more than previously assessed” in the fourth quarter, and the central bank will announce higher forecasts for last year and this year on Jan. 18, it said. The Finance Ministry’s estimate for 2013 is 5 percent.

“Going into the second half, price pressures may become more apparent,” said Eugene Leow at DBS Group Holdings Ltd. in Singapore. “We have one 25 basis-point rate hike penciled in for the fourth quarter.”

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