Thailand lifts rates despite economic jitters

BANGKOK—Thailand’s central bank raised its key interest rate on Wednesday for the sixth time this year, saying inflation was a bigger threat than slowing global economic growth.

The Bank of Thailand’s Monetary Policy Committee voted 5-2 to increase the key lending rate by 25 basis points to 3.50 percent, the highest level in about three years.

Thailand has lifted its key interest rate by 225 basis points since July 2010 to tame inflation, which stands at about four percent on an annual basis.

The latest move came just a day after government data showed the economy contracted 0.2 percent in the second quarter as supply shortages caused by Japan’s massive earthquake led to a sharp slowdown in exports.

“All MPC members see higher risk to growth, but most still see that inflation risks outweigh risks to growth,” said Bank of Thailand assistant governor Paiboon Kittisrikangwan.

At the same time he indicated the bank could mark a pause at its next meeting, scheduled for October.

“If inflation falls, the rate won’t be raised,” Paiboon said.

Supavud Saicheua, senior economist at Phatra Securities, predicted that the central bank would raise its rate one more time and then remain on hold, saying it did not seem overly nervous about the global economic woes.

“I’m more concerned about economic uncertainties in Europe and the US than the Bank of Thailand,” said Supavud.

The central bank has previously warned that the new government’s populist policies, such as a higher minimum wage and increased rice prices for farmers, are likely to fuel price pressures.—Dow Jones Newswires contributed to this story