Bank of Thailand raises policy interest rate 0.25 per cent to curb inflation

Thursday, 14 July 2011 By  MCOT

BANGKOK, July 13 – The Bank of Thailand (BOT) Monetary Policy Committee (MPC) on Wednesday raised the policy interest rate by 0.25 per cent from 3.0 to 3.25 per cent, effective immediately, BOT Assistant Governor Paiboon Kittisrikangwan announced after the meeting.

Due to the continued risks to inflation amid robust domestic demand, the MPC saw it necessary to continue increasing the policy rate to maintain economic stability and anchor inflationary expectations.

Inflationary pressure remained high due to higher energy prices and the continued upward adjustments in the prices of processed food.

Extended price administration and cost-of-living alleviation measures may slow the rise in measured inflation, but other measures such as the prospective increases in minimum wages and fiscal spending amid continued economic growth will likely add to inflationary pressure and may result in heightened inflation, the BoT statement said.

The Thai economy continued to expand in the second quarter primarily from internal and external demand as well as continued fiscal stimulus. The US economy was particularly affected by the surge in oil prices and supply disruption in the automobile sector stemming from the Japan crisis which should abate in the latter half of the year. The Japanese economy is recovering faster than expected.

The euro area continued to expand from growth in the core member countries while sovereign debt problems remained a key risk to the economy. Meanwhile, the Asian economy continued to grow from both internal demand and exports. However, going forward, growth may slow slightly due to tightened monetary policy in contain inflation in many countries.

The BoT assistant governor declined to comment whether or not the new government’s policy to raise the daily minimum wage to Bt300 (about US$10) will cause more inflationary pressure, saying the policy remains unclear. Any impact of such a policy could be analysed only after the new government delivers its policy statement to the parliament, he said.

Three major factors must be taken into account before raising the minimum wage, he indicated. With a better quality of life for workers, the new wage structure should be suitable for efficient labour and productivity, and falls within the criteria of business capability so that entrepreneurs would be able to cope with the change, the central bank executive said.

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