The governor of the Bank of Thailand BoT conceded that the Monetary Policy Committee must raise the policy interest rate to ensure that the country’s core inflation rate stays in a target range of 2-3 per cent this year.

Speaking of the BoT’s policy implementation in 2011, Prasarn Trairatvorakul said the Thai economy had already been restored to equilibrium and projected it would grow only 3-5 per cent this year compared with the 8 per cent expansion last year.Given the current economic conditions, inflation, and internal and external risks, he said the central bank sees the need for the MPC to increase the policy interest rate further, but the decision to do that must be made with caution.

Thai Baht banknote 1000
Thailand’s baht had its best year since 2010 as the economy grew at a faster pace in the first half of the year

On mounting concerns by the private sector that an interest hike would fuel financial costs, Mr Prasarn said the long-term interest rate would be able to stay low only when the inflation rate is not high.Should inflation be allowed to rise, interest rates must be raised to curb rising inflation. Under the circumstances, financial costs would increase and entrepreneurs and consumers in general would be affected. Accordingly, the bank must maintain stable rate of inflation to ensure that the economy is in equilibrium.

via Central bank sees need for MPC to raise policy rate to contain inflation.

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