Inflation biggest challenge for policy-makers

[Admin]

Inflation biggest challenge for policy-makers
By Seetalavajit Sabayjai
The Nation 2011-02-21

Inflation could pose great challenges to Thailand's monetary policy this year, the Bank of Thailand's former deputy governor Bandid Nijathaworn said.

The challenges would mainly come from the country's robust economic recovery, rising commodity prices, global rise in liquidity for commodity futures investment and increasing food prices, he said.

"Thailand's economic pickup could drive the demand for products and services, pushing prices up, while commodity prices, which are major business costs, are rising from the global pickup. The increase in global liquidity is behind more investment in commodity futures as a hedge against inflation. Also, food prices are on the rise as natural disasters and extreme weather conditions are disrupting production. Now, these engines put pressure on inflation," he said.

Table: Thailand's headline inflation

Year-on-year

(%)

August 10: 3.3

September 10: 3.0

October 10: 2.8

November 10: 2.8

December 10: 3.0

January 11: 3.03

Source: The Bank of Thailand

As the Thai economy had already gathered a strong pace of recovery last year, Bandid said the fiscal stance needs to initiate an exit strategy from stimulus measures after that was clearly done by the monetary side, which now adopts rate normalisation. Thailand, now, should adopt growth targeting instead, he added.

If more overseas capital flows into the country, the economy will possibly grow on the upside, he said. Domestic politics could be a downside risk due to this year's general election. The central bank estimates the Thai economy to expand 3-5 per cent in 2011. The economy is projected to have grown by about 8 per cent last year after having shrunk 2.3 per cent in 2009.

The monetary policy should focus specifically on inflation due to its direct impact on the people's cost of living. "It has to be done consistently in advance. The poor will be directly affected by the higher prices," Bandid said. Currently, Thailand has about 9-10 million people, whose daily income is below the World Bank's poverty line.

The central bank started monetary tightening to contain inflation since the start of July 2010, boosting the policy rate to 2.25 per cent currently. "The speed of the rate increase will depend on the Monetary Policy Committee's decision on the situation then," Bandid said. Markets expect the rate to rise 75-150 basis points by the end of this year.

Headline inflation rose from 2.8 per cent last November year on year to 3.03 per cent in January, the most in five months. "Producer prices rose about 6 per cent, two times the consumer prices," Bandid said. The BOT's targeted range for headline inflation is 2.5-4.5 per cent this year. BOT Governor Prasarn Trairatvorakul said last month that policy-makers need to raise interest rates to damp inflation.

Most of the drivers of inflation are external factors, which could persist and continue to fuel inflationary pressure in the country. World oil prices advanced 8.5 per cent from the beginning of this year to February 11, while the World Bank's food price index rose 15 per cent between October and January, led by wheat, sugar and edible oil. The gauge is 3 per cent below a 2008 peak, when surging costs sparked riots in more than a dozen countries.

Global liquidity depends largely on developed countries' economic stimulus policy, which remains uncertain. Questions are raised over the US policy stance if the economy has not staged a full recovery yet, solutions to Europe's sovereign debt problems, China's measures to cool down its economy, the yuan's direction, and emerging countries' measures to stem capital flow, Bandid said.

"It's difficult to predict capital flow. The baht could also fluctuate. Everything is likely to be clearer within the second quarter. The money markets will likely be volatile until these uncertainties fade out," Bandid said. If the United States and Europe have not recovered yet, capital will flow into emerging markets, where corporate profitability and growth prospects are higher, he said.

The world economy has staged a recovery but not in balance. Although emerging countries, which account for 31 per cent of the world's gross domestic product, gained rapid pace of recovery, the major industrialised nations like the US and Europe were growing feebly. Such economic imbalance, leading to different monetary policies, inflation and capital flow, could carry into this year, Bandid said.

The major developed countries are keeping their monetary policy loose, maintaining interest rates at super-low levels, while inflation pressure has forced a number of emerging economies to adopt monetary tightening to contain prices. The political upheavals in the Middle East have also heightened risks for the emerging economies.

As the developed nations and emerging countries are adopting different policies, it has become difficult to address the world economic problems. "Policy coordination may face more constraints," Bandid said.

[Admin]

Thais Call for Faster Solutions to Economic Problems
Tan Network 2011-02-21

Thais are calling for the government to come up with a quick solution to solving the price rise of commodities as many are struggling to keep up with expenses.

As commodity prices have soared in recent weeks due to various factors, Thais are calling for a quicker solution to the problem.

Many have called on the government to decrease expenses and increase household income, as many are struggling to make ends meet.

The public has criticized the government for increasing salaries of government officials, while families are suffering from higher expenses.

In particular, the government has been critized for its inability to solve the hiked prices of palm oil due to its current shortage.

As for the Strong Loan Project under the Pracha Wiwat scheme, Thais are of the opinion that it would only increase debt.

Instead, the government should emphasize on poverty reduction through ensuring fairness for both consumers and operators.

Thais have also asked the government to solve issues surrounding social security in terms of accessibility and service quality, as many groups of people still lack coverage and those with coverage, they have faced unsatisfactory service.

[TBWG]

Thai economy report on BBC site


Thailand's economy has emerged from recession, the latest figures show.

Gross domestic product grew at a quarterly rate of 1.2% in the last three months of 2010, the National Economic and Social Development Board said.

Thailand's economy had contracted by 0.6% during the second quarter and by 0.3% in the third, putting it into a technical recession.

The rebound was helped by a pick up in exports.

Analysts said that the improving growth figures, coupled with higher food and commodities prices, may put further pressure on the central bank to raise its interest rates.

The Bank of Thailand raised its main cost of borrowing by a quarter of a percentage point to 2.25% last month to curb price rises.

Economists expect the bank to further raise interest rates at its next meeting in March.

The economic expansion in the fourth quarter helped Thailand emerge from a technical recession," said Usara Wilaipich, an economist at Standard Chartered Bank.

"This development should support continuing policy rate normalisation by the central bank, which is expected to hike rates by 25 basis points to 2.5%,"


  Thailand is Southeast Asia's second-largest economy and is heavily dependent on exports.

After a tricky first nine months of the year, demand has improved in some of Thailand's main markets as their economies have recovered.

Net exports of goods and services increased by 6.7% in the final three months of 2010, compared with a fall of 14.5% during the previous quarter, the National Economic and Social Development Board (NESD) said.

For the full year, exports from Thailand grew by 28.1%.

The good news for the Thai economy is that export growth has continued this year, with foreign sales up 22.3% in January from the same month a year earlier.

The export figures echoed a trend that analysts had identified in the GDP data.

"External demand remained good and we expect the upside for exports to come from developed countries, especially the US, whose economy is showing clear momentum," said Thammarat Kittisiripat, an economist at Tisco Securities.

    As many central banks are focusing on tackling rising inflation, exports could be affected going forward”


However, it is not all good news and during the current year Thailand is not expected to match the 7.8% rate of growth seen in 2010.

This year, the economy is expected to grow at between 3% and 5%, the Bank of Thailand forecast.

A number of factors will contribute to the slowdown, with analysts identifying inflation and higher interest rates as their main concern.

They also said that there may be weaker demand in China and added that 2011's figures would be lower as they were being compared to a higher base level.

"The economies of many countries are still growing well and that should continue to support exports in the first quarter," said Pimonwan Mahujchariyawong, an ecnomist at Kasikor Research.

"But as many central banks are focusing on tackling rising inflation, exports could be affected going forward."


TBWG

[nookiebear]

A recent report from the Citi Group said inflation in Thailand will be galloping away by the 3rd quarter

[Dave the Dude]

A recent report from the Citi Group said inflation in Thailand will be galloping away by the 3rd quarter

Your not talking about waistlines are you Nookie?

[Admin]

Inflation will be leased within target: BoT chief
By ACHARA DEBOONME
THE NATION
2011-02-24

Bank of Thailand Governor Prasarn Trairatvorakul is confident that Thailand's inflation will not surge beyond the target, despite growing uncertainties worldwide, particularly the Middle East crisis which could threaten price stability.

"We at the Bank of Thailand are confident that core inflation will be within the target of 0.5-3 per cent," he said at a dinner talk to Harvard Alumni on Tuesday night. He assured all that the inflation would be below the top end of the range and higher inflation would not "hinder the growth momentum".

He admitted that managing the inflation expectation of the public was the immediate challenge. While the economic recovery in 2010 convinced central banks that there should be no more accommodative policy, the Middle East crisis is pushing up oil prices, probably above the forecast level.

While highlighting the need for further rate normalisation, Prasarn admitted that there was no fixed figure. He noted that a normal rate, when the economy returns to a normal state, is the rate that does not exert growth bias but strengthens the economic growth. He noted that the normal rate depends on productivity of the labour market.

It is widely expected that the Monetary Policy Committee will raise the policy rate at its March 9 meeting. Many securities houses expect the policy rate to end this year at 3 per cent, from 2.25 per cent at present. Bangkok Bank is the only institution that expects the rate to go beyond 3 per cent in the first half of this year.

Prasarn said the financial stability issue was more complex than price stability, as any country, even with price stability, could experience financial instability stemming from problems related to the stock market, property market and capital flows. This increases the significance of macro-prudential policies, so that the authorities have proper analysis to help stabilise the markets "through a mixture of tools, not just interest rates".

On capital flows, the governor admitted that it is hard to predict the direction of the US dollar as it could appreciate given the broad demand for the currency, or depreciate due to debt problems, structural problems and the pace of economic recovery.

He, however, highlighted the need for a "systematic way" to boost Thailand's overseas investment, following the huge inflows into the Kingdom. Much of the investment went to the bond and stock markets last year. As the Stock Exchange of Thailand gained 42 per cent last year, foreign claims on Thai assets increased accordingly. Yet, Thailand's investment overseas was low. Though the Securities and Exchange Commission is allowed to approve overseas investment of up to US$50 billion (Bt1.5 billion), at the peak only $17 billion was invested.

"We should do more, in a systematic way, for the longer-term growth of the country," he said, adding that more alternatives should be examined.

On domestic issues like deposit protection, Prasarn expects no significant risks to financial institutions from the Deposit Protection Act. On August 11, the protection will be extended only for deposits of up to Bt50 million per institution. On the same date, next year, the protected amount will go down to Bt1 million per institution.

"There are many alternative deposits like mutual funds and B/E [bills of exchange]. Though not protected, mutual funds show high growth. This means people are willing to put savings into alternative savings instruments even without a protection scheme."

He expects more offers to depositors and expressed confidence that all banks would do well despite the law.