Thailand set for 12th rate rise since Aug 2004

BANGKOK, Apr 10 (Reuters) Higher-than-expected inflation in March has erased any doubts the Bank of Thailand (BOT) will raise interest rates on Monday to the highest level in seven years in order to ease price pressures, analysts said on Monday.

''An upside surprise in Thailand's CPI in March poses only a one-way risk to rates and that's up. With this, another 25-basis-point point hike in the BOT's 14-day repo rate is a foregone conclusion,'' ING said in a research note.

Before the March inflation data was announced last week, economist David Cohen of Action Economics in Singapore had expected the central bank to hold its benchmark rate at 4.50 percent on Monday. Tisco Securities held the same view.

But following the announcement -- which showed that intense heatwaves in most parts of Thailand had cut vegetable and fruit output and pushed up prices -- Cohen forecast an increase of a quarter of a percentage point.

''I hope the weather would be just a temporary factor and prices would return to their previous declining trend later,'' he said.

Annual inflation had been falling since hitting 6.2 percent in October, a seven-year high, but it rose to 5.7 percent in March, higher than market expectations of 5.1 percent and above 5.6 percent in February, the Commerce Ministry said.

Eight out of nine analysts in the latest Reuters poll expected the central bank to raise its 14-day repurchase (repo) rate by 25 basis points to 4.75 percent.

It would be the 12th increase by the Bank of Thailand since August 2004 and would take the rate to its highest since November 1998.

However, the baht's sharp gains in the past week, due to a bearish dollar and easing Thai political jitters, may have to be taken into account.

''The BOT should be biased in favour of stability, rather than concerned about the baht and exports which, so far, have not been hurt by the stronger currency,'' Thanomsri Fongarunrung of Phatra Securities said.

''Concern about rising inflation should outweigh the impact on exports.'' The departure, for the moment at least, of Prime Minister Thaksin Shinawatra from the political front lines eased worries that protests against him might turn violent.

''His decision to step aside does not change our expectation of what the central bank will do, even though it helps ease the probability of clashes between pro- and anti-Thaksin groups,'' Thanomsri said.

The main talking point now is whether 4.75 percent will be the peak in Thailand's current round of rate increases.

Some economists said they expected it would be, but others believed further rate rises might be needed if the U.S. Federal Reserve continued to raise its Fed Funds rate.

''Although a 25-basis-point hike is widely expected, the outlook is more uncertain further out,'' Forecast Pte said in a note. ''A lot would depend on external factors such as oil prices and U.S. monetary policy.'' Forecasts of economists: April 10 Q2 2006 Action Economics 4.75 4.75 Capital Nomura 4.75 5.00 DBS Bank 4.50 4.75 Forecast Pte 4.75 4.75 JP Morgan Chase 4.75 4.75 Kasikorn Research Center 4.75 4.75 Phatra Securities 4.75 4.75 Standard Chartered 4.75 5.00 TISCO Securities 4.75 4.75 -------------------------------------------- MEDIAN 4.75 4.75 HIGH 4.75 5.00 LOW 4.50 4.75 REUTERS PV SP1130