The Bank of Thailand's Monetary Policy Committee (MPC) resolved at their afternoon meeting on April 20, 2011, to raise their 1-day R/P rate (BOT key policy rate) to 2.75 percent as expected.They also mentioned that Thai interest rates remained on an upward trend. KResearch views that higher inflation pressure will have an impact on their monetary policy stance.
This resolution does not achieve the unanimous vote. Although a committee member has different points of view from the majority (he agreed with an increase, but proposed slower implementation for a while), he believes that the upward trend will likely continue.
For the policy rate trend over the remainder of 2011, KASIKORNBANKGROUP views that the MPC will likely set a monetary policy direction based on their intention to control inflation that will remain high further with many pressures lying ahead, such as growing demand boosted by numerous factors and supply where rising price of oil, commodity and raw material prices will result in higher consumer goods prices. Although measures to control product and energy prices by the government may be able to help reduce domestic inflation somewhat, they cannot directly cope with the overall inflation expectation.
KResearch estimates that Core Inflation in Thailand will likely reach 3.0 percent or the upper range of the BOT inflation-targeting framework during 4Q11. As a result, KASIKORNBANKGROUP expects that signals toward further monetary tightening may be seen at the two upcoming meetings in June and July 2011, so the Thai policy rate may increase to a level of 3.25 percent by the end of this year.
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