SCB raises growth forecast

Domestic demand behind jump to 5.1%

Siam Commercial Bank's Economic Intelligence Center (EIC) has boosted its 2013 economic growth forecast to 5.1% from an earlier 4.9% and expects the baht to range from 28.50 to 29 against the US dollar.

Sutapa: Predicts static policy rate

Robust domestic demand is a force behind the new forecast, driven by the government's tax rebate for first-time car buyers, said Sutapa Amornvivat, chief economist and executive vice-president of the EIC.

The scheme generated 435,000 new-car sales in last year's fourth quarter, and the momentum continued into the first quarter of this year as 412,000 sales qualified for the tax refund, the EIC said in a report.

New-car sales last year hit a record high of 1.4 million vehicles, of which 1.25 million applied for a tax refund of up to 100,000 baht under the government scheme. Even though the programme lapsed at the end of 2012, car delivery under the it continues through the first half of this year.

Public investment in water management and infrastructure projects will also contribute to dynamic growth in the Thai economy, the EIC report said.

The government's planned borrowing of 2 trillion baht to fund infrastructure projects will be done over the course of seven years, so public debt will rise gradually, said Ms Sutapa.

That aside, the report suggested several risks that could hamper growth prospects of the Thai economy.

Automatic sequestration and quantitative easing policies in the US, tough austerity measures in the euro zone and China's economic slowdown all pose significant threats to growth.

The EIC expects the central bank to enact measures to tame the baht if the situation worsens, said Ms Sutapa.

Industries hurt by the stronger baht include garments, jewellery, processed seafood, rice and rubber.

Despite mounting pressure to cut the policy rate, Ms Sutapa predicts the central bank will maintain it at 2.75% throughout the year.

The Monetary Policy Committee kept the rate on hold at its April 3 meeting, voicing concerns that a rate cut would propel an already strong credit growth, encourage a run-up in household debt and create a bubble in the economy.

A cut in the benchmark rate is even less likely with the prospects of solid growth and strong private consumption and investment as well as manageable inflation and lingering global uncertainty.

Instead, the Bank of Thailand is expected to use softer measures to manage capital inflows and curb the baht's gains, to be intensified later if needed.

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Writer: Pathom Sangwongwanich
Position: Business Reporter