BoT: Inflation rate on target

BoT: Inflation rate on target

Infrastructure projects should lift investment

Headline inflation is on track to reach the low end of the target later this year, says Bank of Thailand governor Veerathai Santiprabhob.

The increase in consumer prices for a second straight month in May had been expected because of rising prices of petroleum and food supplies, he said.

"We already expected that headline inflation would turn positive in the second quarter and would reach the lower threshold of the central bank's inflation targeting policy by year-end," Mr Veerathai said.

Veerathai: Rise in prices was expected

The consumer price index edged up by 0.46% in May from a year earlier after rising 0.07% in April, its first annual gain in 16 months. The core inflation rate, which excludes raw food and energy prices, was registered at 0.78% in May, unchanged from April's figure.

The cabinet late last year approved the central bank's 2016 headline inflation target of 2.5% plus or minus 1.5% on average, the same level as 2015.

The central bank forecasts headline and core inflation this year at 0.8% and 0.9% respectively, while the Commerce Ministry estimates inflation will rise to 0-1%.

Mr Veerathai said the central bank's monetary policy based on flexible inflation targeting remained appropriate.

Emphasis on economic growth can be a focal point for policy deliberation when inflationary pressure is low while ensuring that such a move will not incur risks to economic stability in the long run, he said.

Robust tourism growth cannot compensate for sluggish exports as tourism accounts for a mere 10% of GDP, but tourism remains an important growth driver, he said.

Foreign direct investment requests for the Board of Investment's consideration have been high but several factors will dictate whether these requests will translate into actual investment schemes.

The Finance Ministry's recent move, which received cabinet endorsement on Tuesday, to double tax breaks for private investors this year should help boost investment incentives across all businesses, said Mr Veerathai.

Under the plan, investors will be able to double deductions for their investment expenses if they start a project or begin construction this year and new projects will not need to be completed within a year to qualify.

Clearer development of the government's infrastructure projects in the second half should also help lift private investment, he said.

As interest rates in Thailand remain low and financial liquidity is abundant, businesses should consider starting their investments now, said Mr Veerathai, noting that private investment has been low at a macroeconomic level and businesses should enhance their competitiveness and productivity.

Permanent secretary for finance Somchai Sujjapongse expects private investment will pick up after several big-ticket infrastructure investments kick-start in the final quarter.

Despite a raft of state stimulus measures, private investment remains at a low ebb as investors still lack confidence.

The government may need to launch more short-term stimulus measures to revitalise private investment and consumption to maintain the country's economic rebound, Mr Somchai said.

GDP surprisingly expanded at an annual rate of 3.2% in the first quarter, the highest pace in three years.

"We will keep an eye on economic momentum for the remaining three quarters of this year before making a decision as to whether additional stimulus packages should be introduced," said Mr Somchai.

Separately, the Bank of Thailand posted a net loss of 89.1 billion baht last year, up from a net loss of 61.2 billion in 2014. Its accumulated losses also widened to 635 billion baht from 573 billion.

Interest payments from liquidity absorption through monetary policy management caused the losses, the central bank said.

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