Thai Central Bank raises rates but now sees risks to growth


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The Bank of Thailand raised its policy rate a quarter of a point to 3.50 percent on Wednesday, a move widely expected by economists as inflation pushes higher but one that will annoy the new government, which wants to hold down borrowing costs.

The outlook for rates from here on is uncertain since, as in other countries around Asia, prices are still rising even though trade-dependent economies are slowing as the developed world imports less.

"Despite the slowdown in global oil and commodity prices, inflationary pressure remained as domestic demand continued to expand amid fiscal stimulus. As a result, inflation expectations have risen," the central bank said in a statement.

But it also said the policy rate was getting nearer to normal levels and economist Radhika Rao at Forecast in Singapore noted a "modest tempering in the hawkish rhetoric as attention shifts towards downside risks to growth".

The rate increase by one of Asia's most hawkish central banks follow India's surprise rate rise last month . China also raised rates for the third time this year in July to cool inflation despite slowing growth. .

"Shifts in regional policy management amid an unstable risk environment and volatility in the financial markets alongside pressure from the newly appointed government will need to be factored in," said Rao at Forecast.

"We do not expect the BOT to yield to pressure tactics, though more attention to growth risks are warranted -- we see room for one more hike at best, with odds of status quo until end-year admittedly on the rise," she added. The central bank did not repeat its usual refrain that core inflation could at some point this year breach the upper end of its target range of 0.5-3.0 percent. Nor did it say that rates were still on the rise.

But it repeated that the new government's pro-growth policies could add to inflationary pressures. Core inflation hit 2.59 percent in July.