UPDATE 1-Thai economy unexpectedly strong in Q2, rates to rise

* Q2 growth quarterly 0.2 pct after revised 3.3 pct in Q1

* Q2 growth yearly strong 9.1 pct after 12 pct in Q1

* Agency raises 2010 growth to 7.0-7.5 pct

* Central bank seen raising rates by 25 bps on Wednesday
(Adds details throughout)

By Orathai Sriring and Kitiphong Thaichareon

BANGKOK, Aug 23 (BestGrowthStock) – Thailand’s economy grew by a
faster-than-expected 9.1 percent in the second quarter from a
year earlier, stoking speculation the central bank may become
more aggressive in raising rates, official data showed on
Monday.

The state planning agency which compiles gross domestic
product data nearly doubled its 2010 economic growth target to
7.0-7.5 percent from 3.5-4.5 percent predicted in May at the
height of the worst political unrest in modern Thai history.

“The revision of 2010 GDP implies that the state agency is
more bullish on the economy than other organisations,
signalling the economy should rise more than 7.0 percent,” said
Nuchjarin Panarode, an economist at Nomura Securities.

“We expect interest rates to rise every time for the next
three meetings, meaning the policy rate should be at 2.25
percent at the end of this year.”

The Bank of Thailand is widely expected to raise its
benchmark policy rate by a quarter point to 1.75 percent on
Wednesday. Economists polled by Reuters last month expected the
rate to reach at least 2.0 percent by the year end.

The policy rate rose by 25 basis points from a record low
1.25 percent last month, the first increase since the global
downturn, to curb nascent price pressure as the economy
rebounds. The rate had been cut by 250 basis points from
December 2008 to April 2009 to help pull the economy out of
recession.

Bond yields were unchanged after the data. Yields had
dropped in opening deals due to firm bids from offshore buyers
but have stabilised since then. Benchmark five year bond yields
(TH5YT=RR: ) are now at 2.72 percent, down 5 basis points from
Friday’s close.

Thai baht (THB=: ) firmed 0.13 percent to a fresh 28-month
high in early trade on rising capital inflows to Thai stocks
(.SETI: ), which added 0.32 percent to approach a new 33-month
high (.BK: ).

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For a graphic on GDP and expected business sentiment,
please click on
http://graphics.thomsonreuters.com/F/08/TH_GDP0810.gif

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NARROWLY AVOIDING CONTRACTION

Other big Asian exporting economies are also registering
strong quarterly growth. On Thursday, Taiwan raised its
economic growth forecast for 2010, citing emerging market
demand and investment by Taiwanese firms such as chipmaker TSMC
(2330.TW: ).

On Wednesday, Malaysia posted stronger-than-expected
second-quarter growth and acknowledged inflationary pressure
was on the rise, although it was not expected to hasten another
rate hike by the central bank.

In Thailand, second-quarter growth was better than the 8.0
percent expected by most economists surveyed by Reuters and
marked a slowdown from a torrid 12 percent first-quarter
expansion that was the strongest rate in 15 years.

“We’ve seen very strong momentum in the last three months
in certain sectors like autos and electronics. Even tourism is
starting to recover,” said Rahul Bajoria, an economist at
Barclay’s Capital in Singapore.

“Looking forward, the data is likely to moderate in the
coming months, it’s not a big cause of concern. Thai growth for
the next two quarters is still likely to be fairly positive.”

On a quarter-on-quarter basis, Southeast Asia’s
second-biggest economy avoided a widely expected contraction in
the quarter, growing 0.2 percent from the first quarter.

Economists had expected the $264 billion economy to have
contracted 1.3 percent in the second quarter from the previous
quarter due to recent political violence that hurt tourism and
private consumption.

The central bank has said although inflation is not a worry
this year due partly to government subsidies, core inflation
will likely rise further next year as the economy grows and the
subsidies on utilities and public transport end.

It predicts core inflation will rise to 2.0-3.0 percent in
2011, near the top end of its 0.5-3.0 percent target range,
from only 0.5-1.3 percent expected for this year. It has said
its interest rate normalisation is to pre-empt price risks.

“Although the Thai economy remains largely resilient,
global uncertainties and inflation will still be major risk
factors to weigh on the economy going forward,” said Pimonwan
Mahujchariyawong, an economist at Kasikorn Research Center.

Last month, the central bank also upgraded its 2010 growth
forecast sharply to 6.5-7.5 percent from 4.3-5.8 percent, while
Finance Minister Korn Chatikavanij and the International
Monetary Fund both predict growth of as much as 8 percent this
year, which would be the highest rate in 15 years.

Economists surveyed by Reuters last week forecast the
economy would grow a median 6.9 percent this year after
shrinking 2.2 percent in 2009 following the global crisis.

(Additional reporting by Saikat Chatterjee in Hong Kong.
Editing by Jason Szep)

UPDATE 1-Thai economy unexpectedly strong in Q2, rates to rise