Thailand Raises Key Rate for First Time Since 2008
Thailand Raises Key Rate for First Time Since 2008
With assistance from Michael Munoz in Hong Kong, Yumi Teso and Dan Ten Kate in Bangkok.
Editors: Stephanie Phang, Tony Jordan
July 14 (Bloomberg) -- Thailand’s central bank raised its benchmark interest rate for the first time in almost two years after deadly political protest ended last quarter without derailing the economy.
Thai consumer confidence rose for the second straight month in June even after the nation’s worst political violence in almost two decades killed 89 people in April and May. Governor Tarisa Watanagase said last week the central bank will take “preemptive” steps to control inflation, as counterparts from Malaysia to Taiwan boost borrowing costs amid an Asian rebound.
“The sentiment is right for the central bank to start their normalization now,” Usara Wilaipich, an economist at Standard Chartered Plc in Bangkok, said before the decision. “The latest economic data confirmed there was limited impact from the political unrest. As economic recovery is looking entrenched, the central bank will pay more attention to dealing with the inflationary pressure on the horizon.”
The baht rose 0.1 percent to 32.33 per dollar today.
Swaps, Bonds
Thailand’s interest-rate swaps and bond yields have climbed as investors boosted bets the central bank will increase borrowing costs. The one-year onshore swap rate rose 30 basis points this month to 1.68 percent today, the highest since April 9. The yield on the 5.25 percent debt maturing in July 2013 has climbed 27 basis points to 2.7 percent, according to the Thai Bond Market Association. A basis point is 0.01 percentage point.
Overseas sales helped Thailand weather two months of anti- government protests that hurt tourism and disrupted manufacturing at some factories. The Cabinet on July 6 extended emergency rule in a quarter of the country, including Bangkok, for another three months after using troops to disperse opposition protesters in May.
Thailand’s $272 billion economy grew 12 percent in the first three months of this year, the most since 1995, as the global recovery spurred overseas orders. Exports rose 42.5 percent in May, the biggest gain since July 2008.
Fears Fading
Automakers Ford Motor Co., General Motors Co. and Mitsubishi Motors Corp. announced plans to build new factories or expand production in Thailand in the past month.
“Thailand’s export upswing could still falter if the global recovery deteriorates, but such fears are fading,” Matthew Circosta, an economist at Moody’s Analytics in Sydney, said in a note yesterday. The central bank “should feel confident” after Malaysia, Taiwan and South Korea, which are also export-dependent, increased their borrowing costs recently, he said.
Thailand’s central bank raised its benchmark rate from the lowest level since July 2004. Malaysia last week raised its overnight policy rate for a third time this year to 2.75 percent. South Korea, Taiwan and India have also increased borrowing costs as their economies strengthened.
Thai consumer price gains slowed to 3.3 percent in June, while core inflation, which excludes fresh food and fuel, cooled to 1.1 percent, staying below the central bank’s target of less than 3 percent. The bank has said state subsidies for transport and fuel were masking price increases, and inflationary pressure may rise in the second half of the year as the economy recovers.
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