Thai inflation won’t soar as in China, Indonesia, says SCB chief economist

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Thailand’s inflation rate will not soar as dramatically as those in China and Indonesia because the rate is calculated based more than 30 percent on rice and food prices, according to a leading Bangkok commercial bank economist.

Sethaput Suthiwart-Narueput, head of the Siam Commercial Bank Economic Intelligence Centre, said the Monetary Policy Committee’s decision to raise the benchmark interest rate by 25 basis points from 2.25 percent to 2.50 percent on Wednesday lived up to expectations.

The Bank of Thailand signaled clearly it wanted to turn the actual interest rate, which is negative at present, to move in a positive territory.

Dr Sethaput believed the policy interest rate would continue rising by 0.25 percent each time because an interest rate rise by 50 basis points would make the baht strengthen too rapidly.

He said the baht has not appreciated sharply at present, so it is a proper time now for the MPC to raise the interest rate to stem rising inflation.

He predicted the inflation rate will stay within a range of 3.5-4 percent this year.

Dr Sethaput said although the interest rate had gradually increased, it would not adversely affect private-sector operating costs.

What is worrying now is the government’s announcement of a policy to raise the national minimum wage by a further 25 percent within two years, which would significantly add to operating costs of entrepreneurs.

The measure is seen as a distortion of the market mechanism. Although it could boost labor wages immediately, it would cause problems in the long run, he said.

“A further wage increase will push up business costs, which have been already fueled by higher interest rates and rising energy prices. Instead of raising the minimum wage, the government should find a way to increase incomes. It should also allow energy prices to move by market mechanisms so that the people turn to save on energy consumption,” he said. (MCOT)