BBL quickly follows BoT rate hikes

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BBL quickly follows BoT rate hikes 
Bangkok Post: 13 Jan 2011
BBL quick to follow BoT
More rate hikes widely expected

The Bank of Thailand yesterday raised its key interest rate as widely expected, and the country's biggest commercial bank wasted no time responding, lifting its deposit and lending rates.

Bangkok Bank today is raising its savings deposit rates by 0.125 percentage points to 0.625% per year from 0.5%, and those for institutional customers by 0.25 points. The bank lifted fixed-deposit rates by a range of 0.25 to 0.375 points and for bills of exchange by 0.125 points.

It was the first time in two years that the bank had lifted its savings rate.

It also raised its lending rates by 0.375 points, with the new minimum lending rate at 6.375%, minimum overdraft rate at 6.625% and the minimum retail rate at 7%.

An analyst in the banking industry said savings deposit rates for individual accounts of the country's large banks had remained unchanged for more than two years, and other banks would follow suit.

Kasikornbank would consider the market today before making any adjustments, said first senior vice-president Chongrak Boonchayanurak.

Tak Bunnag, an executive vice-president at Bank of Ayudhya, said its executives would meet tomorrow to review rates.

The central bank's Monetary Policy Committee lifted its overnight repurchase rate by a quarter percentage point to 2.25%, reflecting better confidence in the economic outlook and increasing concerns about too low interest rates and higher inflation.

Economists said the MPC's unanimous decision signalled a quicker pace of monetary tightening in the first half of this year. It raised rates three times last year by 25 basis points at a time.

Paiboon Kittisrikangwan, a central bank assistant governor, said the bank wanted to pre-empt inflationary pressure and negative impacts on the economy from low interest rates.

Pressure on consumer prices has stemmed from a rising trend in oil, farm and commodity prices. Producers are expected to begin increasing prices this year because of pent-up demand from the Commerce Ministry's controls and strong consumption demand.

Higher borrowing costs would also prevent unneeded expansion in investment and a possible asset price bubble in the future,central bankers say.

"The interest rate, inflation-adjusted, still remains in negative territory after the increase this time. The MPC members would like to see the interest rate moving on a normalised trend," Mr Paiboon said.

He said the risks in the world economy had declined from the previous meeting as growth in the United States is expected to accelerate from 2010. European economies are expected to be bolstered by exports and consumption in core members including Germany.

Yesterday's meeting was the first in which the seven-member MPC revealed its vote breakdown. The MPC, which meets every six weeks, would continue to do so and reveal minutes two weeks after each meeting from now on, he said.

Kobsak Pootrakul, executive vice-president at Bangkok Bank, said the MPC was likely to incrementally increase the policy rate at almost every meeting until it stood at appropriate level.

The Stock Exchange of Thailand yesterday made modest gains, mainly because of the rise in Asian stock markets and external factors, said Sukit Udomsirikul, senior vice-president at SCB Securities.

"The rebound of Asian stock markets was caused by the recent news about the intention of Japan's central bank to buy Portuguese bonds. That caused the euro to rebound against the US dollar," he explained.

The SET index closed yesterday at 1,019.51 points, up 6.12 points or 0.6%, in trade worth 42.09 billion baht.

Monrat Phadungsit, president of One Asset Management, said the interest-rate increase was no surprise as it was meant to curb a rise in inflation.

However, he expected inflation would continue to rise following the surge in oil prices.

Issara Boonyoung, president of the Housing Business Association, said he believed the higher rates should not affect housing demand but would raise development costs.

"Nonetheless, an impact on housing demand will also depend on the economy and the political situation," he added.

Payungsak Chartsutipol, chairman of the Federation of Thai Industries, criticised the MPC's focus on inflation and said it should consider other factors including the floating of LPG prices, the strengthening baht and oil prices.

"It seems [the MPC] has already made its decision before every meeting. It hasn't really taken other factors into account. That's because if it did, it wouldn't lift the rate now," he said.

http://www.bangkokpost.com/business/economics/216108/bbl-quick-to-follow-bot