Thai rates: global pressures - Financial Times (blog)

Another day, another emerging market rate increase, as the fight against inflation goes global.  On Wednesday it was Thailand's turn, with the central bank raising its benchmark rate by 25 basis points to 2.50 percent, in its fifth increase in six meetings, and signalling more to come.

On Thursday, South Korea is almost certain to follow suit, and it may not be the last increase this week, with the Malaysian central bank meeting on Friday. It is the right point in the cycle for tightening, of course, but the uncertainties are much bigger than normal, with oil prices threatening to go higher, gold at record levels, and agricultural commodity prices on the up.
"The surge in oil and commodity prices has resulted in increased inflationary pressure," Bank of Thailand
Assistant Governor Paiboon Kittisrikangwan told reporters, noting an improved outlook for the US economy and robust
growth in Asia (Reuters).

Thailand, Southeast Asia's second-largest economy, has Asia's lowest interest rates after Taiwan . But the central bank  has been among the most aggressive in raising rates, perhaps with an eye on the government's growing willingness to relax the fiscal strings in advance of elections later this year.

Five-year bond yields declined 2 basis points after the decision to 3.36 percent, while the baht was steady, trading around 30.31/35 per US dollar, in line with its flat performance this year.

The central bank said in a statement:

The MPC [monetary policy committee] viewed that unless political unrest in the Middle East becomes widespread and affects global oil supply, the current spike in oil and commodity prices will not significantly impact the continuity of global recovery.The Thai economy continues to expand steadily, supported by expansion in exports, private consumption and private investment as well as fiscal stimulus. Private consumption growth continues to be supported by high farm income and improving
employment. Private investment is underpinned by rising manufacturing production and business confidence. In light of these relatively strong fundamentals, the MPC evaluated that the current surge in oil and commodity prices would not weigh on the growth prospects of the Thai economy.

The surge in oil and commodity prices has resulted in increased inflationary pressure compared to the previous MPC meeting. Nevertheless, the MPC assessed that gradual normalization of the policy rate remains appropriate for anchoring inflationary expectations and reducing the risk of financial imbalances in the economy.

HSBC said in a note:

Central bank hikes further, prudently and unanimously
Will oil spike hurt global growth too much? BOT thinks not. Unless other dominoes shake more violently in the Middle
East and supply is hurt, global recovery – and the related growth prospects for the Thai economy – will not be too
impacted, it essentially says. Inflation is still the primary concern and the MPC has, again, unanimously opted for
a 25bps hike today, as expected. Headline prices may appear tame due to subsidies and such, but the hawk has not
been fooled by such mirage. If anything, not only more rate hikes are coming, but it has even hinted at a faster pace of
normalization if necessary.

So, like central banks almost everywhere, the Bank of Thailand is watching the global situation carefully.