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ECONOMY
NUNTAWUN POLKUAMDEE
Vendors take orders for their cooked food in one of the main markets. High food prices have put pressure on the central bank to raise interest rates. |
Policymakers face limited options in wrestling with rising inflationary pressures, analysts agree.
Most economists believe the central bank's Monetary Policy Committee will likely raise its one-day repurchase rate by at least 0.5 percentage points this year, with rate hikes starting at its next meeting on July 16.
Usara Wilaipich, a senior economist of Standard Chartered Bank (Thai), noted that other countries enjoyed greater policy flexibility in dealing with inflation than Thailand.
Singapore, for instance, used its considerable base of foreign reserves to help the currency appreciate by 10% since April, reducing the cost of imports and easing inflation in the economy.
Currency speculators have also been reluctant to attack the Singaporean dollar thanks to the country's large foreign reserves, which stood at $175 billion at the end of May.
Ms Usara, speaking at a conference last week at the Stock Exchange of Thailand, said for rapidly growing countries such as India or China, interest rate policies could be used to help reduce inflation without severely affecting growth.
Moves to reduce fuel subsidies in both countries would also cut consumer purchasing power and potentially reduce import demand.
For Thailand, which operates under an inflation-targeting model, rate hikes are inevitable, Ms Usara said, as core inflation in June jumped to 3.6% compared with 2.7% year-on-year growth the previous month. The MPC maintains an upper target of 3.5% for core inflation.
But rate hikes of say 0.5 percentage points over the next two MPC meetings were unlikely to significantly affect inflation, she said, considering that price increases were being driven by rising oil prices.
Abhisit Vejjajiva, the leader of the opposition Democrat Party, agreed that a rate hike was all but inevitable.
''Inflation will be the main factor for economic growth going forward. The government needs to move cautiously and establish a long-term plan for managing the situation,'' he said.
Mr Abhisit said the government should accelerate its infrastructure megaprojects to increase employment and investment and overhaul the energy sector to allow fair competition against state-owned giant PTT Plc.
Santi Kiranand, the president of the Bond Electronic Exchange, said the government should allow energy prices to move with market forces.
This would force consumers to adjust their behaviour and help spur development of alternative energy sources, he said.
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