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16 May 2008

Financial Markets

MPC Meeting, May 21: Interest Rates May Be Put on Hold (Business Brief No.2168)

KASIKORN RESEARCH CENTER (KResearch) forecasts that the Bank of Thailand's Monetary Policy Meeting may resolve to hold the policy rate unchanged at 3.25 percent in this year's fourth meeting slated for May 21, 2008. Priority may be placed on expected high inflation over any risks during the remainder of this year, especially if Thailand's economic indicators continue to show satisfactory growth. Although high inflation derived mainly from supply-side factors, such as escalating oil and commodity prices, and core inflation is likely to remain within the MPC's inflation targeting, the Thai policymakers may have less leeway to make another rate cut to spur the economy as it may put economic stability at risk. This is particularly true as the average Headline Inflation rate this year may be in a range of 5.0-5.8 percent, up considerably over 2.3 percent of last year. However, hikes in the interest rate to contain inflation may not be immediately implemented as that move could worsen the fledgling economic recovery.

Looking ahead, KResearch takes the view that the domestic interest rate trend will hinge chiefly on developments in oil and commodity prices, as well as consumer and investor confidence, effectiveness of the government's stimulus program and the global economies, especially the USA. These factors will affect inflationary risk and economic growth as well as the MPC's monetary policy maneuvering to balance those risks.

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