Thailand's central bank has correctly tightened monetary policy to tackle price pressures but increases in interest rates should be more moderate between now and the end of the year, the World Bank said on Tuesday. The Bank of Thailand has raised its benchmark rate, the one-day repurchase rate, five times, by a quarter of a point each time, to 2.50 percent in six meetings since July 2010. Economists expect another rise later this month.
"We find that the direction of increasing interest rates is appropriate. We do expect the tightening to continue," Frederico Gil Sander, the World Bank's country economist for Thailand, told Reuters on the sidelines of a conference. "But do we expect a 3 percent rate by June? We hope that would be too fast. It's probably appropriate to continue to raise rates at a more moderate pace between now and the end of the year."
Tightening too rapidly would attract capital inflows and probably slow the recovery prematurely, Gil Sander said. Despite relatively benign inflation, the Thai central bank has said it is worried about inflation expectations and it has been one of Asia's more hawkish central banks during this cycle. Annual headline inflation rose to 3.14 percent in March from 2.87 percent in February while core inflation hit 1.62 percent, still only in the middle of the central bank's target range of 0.5-3.0 percent, which guides its monetary policy.
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