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ECONOMY

Central bank urged to leave rates alone

SOMRUEDI BANCHONGDUANG

The Bank of Thailand should keep interest rates unchanged until the end of the year to help support economic growth, according to Usara Wilaipich, a senior economist of Standard Chartered Bank (Thai).

The central bank has been signalling for weeks that interest rates are expected to rise as inflation rose to a 10-year high at 7.6% in May. Most analysts expect the central bank's Monetary Policy Office to raise its one-day repurchase rate, currently 3.25%, by at least a quarter point at its next meeting on July 16.

But Dr Usara said she believed that the immediate focus should be on growth rather than inflation.

''Higher interest rate would dampen the country's already sluggish economy and lead to disadvantages rather than benefits for the economic system,'' she said at a briefing yesterday.

Dr Usara and Nicholas Kwan, Asia regional head of research for Standard Chartered, discuss economic trends at a briefing yesterday. — KITJA APICHONROJAREK

''Market rates have already increased and impacted the system, so there is no necessity to raise policy rates.''

Based on the economic outlook for the next 12 months, the government should look to increase stimulus measures in the second half, particularly focusing on domestic consumption and private investment.

Domestic consumption growth was just 1.4% last year, compared with 6.2% in 2004. Private investment rose by just 1.4% compared with 13.2% in 2004.

Standard Chartered currently projects economic growth of 4.7% this year, with inflation averaging 6.4%. Inflation would fall to 3.8% in 2009, but growth would also slow to 4.5% as a result of political instability, a continued slowdown in the US and high oil prices and inflation.

Dr Usara said that most countries around the world were facing higher inflation due to rising costs.

Authorities should use both fiscal and monetary policy to encourage economic growth rather than paying attention to inflation rate.

''The authorities should allow headline inflation to correct itself once oil price ease off without changing policy rates,'' she said, adding that Thailand's inflation rate was lower than several other countries in the region.

According to Standard Chartered, inflation in China could average 6.5% this year, India 8.7%, Indonesia 10.7%, the Philippines at 7.3% and Vietnam 23%.

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