Thailand raises rates, signals more to come

The Bank of Thailand raised its benchmark interest rate by a quarter of a point to 3.25 percent on Wednesday and signalled further tightening to come to tame inflationary pressures as a new government moves to boost growth and increase wages.
The central bank expressed caution over potential inflation after the July 3 election victory of the opposition Puea Thai Party led by businesswoman Yingluck Shinawatra, whose campaign promises included a big increase in the minimum wage. "Measures such as the prospective increases in the minimum wage and fiscal spending amid continued economic growth will likely add to inflationary pressure and may result in heightened inflation expectations," the central bank said in a statement.
The rise in borrowing costs by one of Asia's most hawkish central banks follows China's tightening last week for the third time this year as the region battles price pressures. The Bank of Thailand repeated that core inflation could at some point this year breach the upper end of its target range of 0.5-3.0 percent.
"Government subsidies may ease inflation figures but there is still a chance that core inflation will go above the target range," Asssistant Governor Paiboon Kittisrikangwan told a news conference. "On the government's policy, we cannot say anything much at the moment. We will have to wait for clarity as the government has not been formed yet. We will wait to see when and how those policies will be implemented as well as funding," he added. Usara Wilaipich, senior economist at Standard Chartered Bank in Bangkok, expected one more rate rise to 3.5 percent this year
"Overall, the Bank of Thailand's statement remains hawkish, highlighting that the populist policies may heighten inflation expectations," she said. The baht edged up after the increase to 30.24/27 per dollar compared with 30.27/31 shortly before. Bond yields were steady, with the five-year yield up 1 basis point at 3.93 percent. The stock market was up 1.4 percent in late trade, having been up 1.1 percent at midsession when the decision was announced.