Thai central bank raises prospect of no rate rise in 2010

Thailand's central bank governor held out the prospect on Tuesday that the record low interest rate of 1.25 percent could stay unchanged all through 2010 if inflation remained within the monetary authority's target range. The comments from Tarisa Watanagase echoed those of Bank Indonesia, although analysts have pencilled in rate rises in both Thailand and Indonesia next year.
"As of now, inflation for next year should not be a concern as it will be based on a low base this year. We have never said it will rise to such a high level that will become a problem," Tarisa told reporters. "It is not necessary that rising inflation will require us to raise rates. If higher inflation still remains in our target range without affecting economic growth, there is no need for us to adopt any tightening measures," the governor said.
Her comments come after one of her deputies raised the prospect of tighter policy in 2010 if price pressures emerge. Deputy Governor Bandid Nijathaworn told reporters on Thursday the central bank would be vigilant as inflation picks up in 2010. "Next year if inflation is higher, our policy weight may shift back to stabilising the economy," Bandid said, adding the central bank was focusing at the moment on boosting growth with low interest rates.
Most analysts have not changed their expectations for when the Thai central bank will start to raise rates, seeing a tightening cycle starting in mid-2010 at the earliest. The central bank sees more headwinds to economic growth next year from the sluggish global recovery and the impact of environmental problems faced by big projects at the country's industrial hub south-east of Bangkok, they say.
"The headwinds to growth and a government decision to extend public utility subsidies into next year could ease price pressures and affect the frequency of rate rises in the second half," Pimonwan Mahujchariyawong of Kasikorn Research Centre said. Asa Intharavichai of AYF Fund Management expected BOT to start raising rates in mid-2010, instead of from the end of the first quarter expected earlier, while Pornthep Jubandhu of SCB Bank predicted that a rate rise could be delayed until late 2010.