The Bank of Thailand said on Monday inflation risk was rising fast and interest rates would continue to be normalised gradually, supporting market expectations that rates would rise again next month. Governor Prasarn Trairatvorakul told reporters the central bank's focus remained on maintaining price stability to hold back inflation.
"Our rate policy is still in the normalisation process. But there is no need for big moves, but rather gradual to build confidence," he said on the sidelines of a seminar in Bangkok. Prasarn said inflation this year might reach the upper band of the central's bank's target range of 0.5-3.0 percent, which it uses monetary policy to achieve.
"Monetary policy should be pre-emptive. The central bank will take care of risk by maintaining price stability in the long run," he told the seminar. "Prolonged oil price hikes will trigger more inflation." Economists expect the central bank to raise its benchmark rate, the one-day repurchase rate, again by a quarter of a point to 2.75 percent at its next meeting on April 20 to curb rising inflationary pressures. That would be its sixth increase since last July.
Although economists expect further tightening in April, the earthquake in Japan and unrest in the Middle East have raised doubts because of the impact on trade and oil prices. Even before the quake, Industry Ministry data on Monday showed manufacturing output data came out worse than expected, falling 3.43 percent in February from a year earlier after a 3.7 percent rise in January. Economists had expected a rise of 2.2 percent in annual output in the month.
The quake impact will be felt over the next two months, the ministry said. Prasarn said, however, he expected a short-term impact on Thailand, Southeast Asia's second-largest economy, from the earthquake in Japan because of close trade ties between the two countries. The central bank has kept its economic growth forecast at 3.0-5.0 percent this year.
Thailand's central bank has been one of Asia's most hawkish, with five rate rises since July 2010, when it started taking the rate back from a record low of 1.25 percent. The minutes of the central bank's March 9 meeting, when it raised the policy by quarter of a point, showed some Monetary Policy Committee members felt government price controls might be distorting official inflation figures.
Annual core inflation - which excludes fresh food and energy prices - rose to 1.45 percent in February from 1.32 percent in January. The headline rate eased to 2.87 percent from January's 3.03 percent, due in part to government subsidies and price controls on certain goods.