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Oil prices may alter Thailand inflation figures

Publication Date : 14-02-2013


The Bank of Thailand is keeping a close watch on the global oil situation, and will consider revising this year's inflation figures if the price of crude continues to rise.

Mathee Supapongse, BOT senior director for the Macroeconomic and Monetary Policy Department, yesterday said that while oil prices were rising consistently, they had not fuelled inflationary pressure in Thailand as yet.

However, if crude prices continued increasing, the central bank may have to revise the average figures for this year's inflation, he said.

Economic recovery in the United States and China as well as persistent growth in Asia is believed to be boosting fuel prices. Dubai crude last week gained US$2.12 per barrel to $111.77.

While output of the Organisation of the Petroleum Exporting Countries output is expected to have fallen slightly to 30.45 million barrels a day in January, China's oil imports rose 6.3 per cent to 5.92 million barrels. The BOT currently projects the average 2013 price of Dubai crude at $105 per barrel.

"It's still fine if the oil price climbs to this level [$105 per barrel]. However, the point is that we don't know how long the prices will continue rising. Therefore, we have to wait and see them over the long period. Now, inflation is not a concern and it is still coming in as expected," Mathee added.

The central bank forecasts headline inflation at 2.8 per cent on average for this year, while core inflation is estimated at 1.7 per cent.

Thai economic growth is projected at 4.9 per cent for 2013, with threats to expansion mostly coming from external situations, which have been easing, as mentioned in the Monetary Policy Committee's statement of its previous meeting.

Relatively high expansion of lending, including household loans, remains a concern of the central bank, which is monitoring the situation closely.

However, Finance Minister Kittiratt Na-Ranong yesterday said his ministry and the central bank shared a common principle in handling the inflow of foreign capital by focusing on long-term stability, and this was why the ministry had asked the BOT to cut the policy rate.

It is now for Monetary Policy Committee to make the final decision on the key rate, which is currently 2.75 per cent. The committee next convenes on February 20.

Kittiratt, who is also deputy prime minister, recently warned BOT chairman Virabongsa Ramangkura about th-e central bank's ballooning losses stemming from foreign-exchange stabilisation.

In a letter sent to Virabongsa on January 30, he said the baht had appreciated more against the US dollar than the currencies of Thailand's trading partners.

If this situation were allowed to continue and not be tackled appropriately, it could damage the economy and affect national competitiveness. The massive capital inflow might bring problems to the property sector and the capital market, he said.

Given that the government's policy is to maintain sustainable growth, the central bank is bound by duty to protect the financial stability and the stability of financial institutions and the payment system. The BOT has to manage its policy in line with the government's economic policy.

The baht's rise has also affected the financial status of the central bank. If it is found that the BOT's execution of its monetary policy has affected its financial status and the economy, its committee might have to take responsibility for such a loss, the letter said.

In a related matter, former finance minister Thirachai Phuvanatnara-nubala yesterday posted on his Facebook page that several Monetary Policy Committee members could favour a policy-rate cut of 25 basis points next week, as they might want to see an end to the row between the Finance Ministry and the central bank.

Meanwhile, Moody's Analytics believes the BOT does not envisage cutting Thailand's policy interest rate this year, given concern that excessive lending could lead to bubbles in asset prices. "Policy-makers must also pay close attention to excessive lending growth [besides inflation]," analyst Fred Gibson said in a report titled "Thailand Outlook: Spreading the Benefits of Growth".


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