UPDATE 2-Thai c.bank holds rates, cites global risks

* Economists had not expected a rise after surge in the
baht

* But most expect an increase in December, the next meeting

* Central bank expects core inflation to rise next year
(Adds Reuters poll, details)

By Orathai Sriring

BANGKOK, Oct 20 (BestGrowthStock) – Thailand’s central bank left
its main interest rate unchanged at 1.75 percent on Wednesday,
pausing after two straight increases and citing risks from a
slowing global economy, but it signalled tighter credit ahead.

Thailand joins other countries in holding back increases in
borrowing costs in the face of faltering global demand and
growing tension between developed and emerging economies over
global flows into high-yielding markets.

Last week, South Korea unexpectedly held rates. Indonesia
and the Philippines also held off this month.

But the Bank of Thailand, in its first decision under new
chief Prasarn Trairatvorakul, said rates remained on an upward
trend and were not yet “normalised” after falling from April
2009 to a record low to help Southeast Asia’s second-biggest
economy recover from the global downturn.

That comment pushed bond yields up in anticipation of
higher rates ahead. Five-year Thai government bond yields
(TH5YT=RR: ) were at 2.47 percent, down 5 basis points from
Tuesday but up from 2.45 percent earlier.

Most economists expect the central bank to lift its policy
rate by 25 basis points to 2.0 percent at its next meeting in
December, according to a Reuters survey of 16 economists taken
after Wednesday’s announcement. [ID:nSGE69J06J]

China’s decision on Tuesday to increase borrowing costs for
the first time in three years was a factor in the Thai
decision, along with the risk of a global slowdown, the central
bank said.

“The risk that decelerated global growth may adversely
impact Thai exports remains. Meanwhile, the outlook on
inflation pressure remains unchanged,” the bank said in a
statement.

It pointed to faltering recovery in the United States and
Japan, where central banks are easing policy, and risks in
debt-ridden Europe.

It did not cite the baht as a decisive factor for holding
rates although the currency has risen 11 pct this year, raising
concern from exporters and prompting the government to impose
steps to curb fund inflows.

Economists had until recently expected a rate rise at this
meeting. But a Reuters survey this week showed 11 of 18
analysts expected the central bank to pause for now.

The Bank of Thailand had tightened by a quarter of a point
in both July and August as it started a “normalisation” of
policy after leaving rates at a record low of 1.25 percent from
2009.

“The BoT is expected to return to policy rate normalisation
inevitably at some point in 2011,” said Usara Wilaipich, an
economist at Standard Chartered Bank, noting that recent floods
could push up some food prices and spur inflation.

STRONG EXPORTS

Thailand’s economy is showing signs of continued strength,
particularly in exports, despite the strong baht.

Exports hit a record high in September, giving a far higher
trade surplus than expected at $3.07 billion, data on Wednesday
showed, and the Commerce Ministry said shipments would rise at
least 20 percent this year despite the rise in the baht.

A rate rise later this year remains possible, said David
Cohen, an economist at consultants Action Economics in
Singapore.

“The better-than-expected September exports reported just
earlier offers some encouragement that the economy is still
growing,” he added.

Concerns from exporters prompted the government to slap a
tax on foreign gains on government bonds last week in an
attempt to slow inflows and hold down the baht.
[ID:nSGE69B0A6].

The central bank has said price stability remains the focus
of monetary policy. Officials say inflation is not a problem
this year but core inflation could rise to the top end of its
target range of 0.5-3.0 percent next year as the economy grows
and when government subsidies on transport and utilities end.

The central bank has forecast core inflation of 0.5-1.3
percent for this year and 2.0-3.0 percent for next year.

It has forecast economic growth of 6.5-7.5 percent for
2010. It reviews that forecast later this month. The World Bank
forecast 7.5 percent on Wednesday but expects growth to slow to
just 3.2 percent next year. [ID:nTWKILE63Y]
($1=29.90 baht)
(Additional reporting by Kitiphong Thaichareon; Editing by
Jason Szep)

UPDATE 2-Thai c.bank holds rates, cites global risks