By Shamim Adam and Michael J. Munoz
July 15 (Bloomberg) -- Policy makers in Thailand and the Philippines may increase interest rates this week, joining central banks across the region in raising borrowing costs to contain inflation that's at the fastest in at least a decade.
The Bank of Thailand will raise the one-day bond repurchase rate for the first time in two years tomorrow, according to all 19 economists surveyed by Bloomberg News. Bangko Sentral ng Pilipinas, meeting a day later, will increase the rate it pays banks for overnight deposits a second straight month, according to all 20 economists in a separate survey.
Surging oil and food costs are forcing central banks from Vietnam to Pakistan to raise borrowing costs to tame inflation, even as a U.S. slowdown hurts demand for Asian exports and erodes growth in the region. That's leaving governments and policy makers torn between the need to control inflation and maintaining economic expansion.
``Asian central banks are shifting towards a more hawkish bias, and those deemed not to be hawkish enough risk inflation expectations becoming unanchored,'' said Vishnu Varathan, a regional economist at Forecast Singapore Pte. ``We can expect higher interest rates in the weeks and months ahead.''
Indonesia raised its benchmark rate for a third straight month in July, while India boosted borrowing costs twice in June. In Vietnam, the central bank raised its base rate to 14 percent last month, the highest in Asia.
The Bank of Thailand, which has held the policy rate at 3.25 percent since August, last raised it in June 2006. The central bank may raise the rate by 25 basis points to 3.5 percent tomorrow, according to 16 of 19 economists surveyed by Bloomberg News. The remaining three expect a half-a-percentage- point increase.
Transport, Labor
Thai consumer prices gained 8.9 percent last month, the fastest in a decade.
Inflationary pressures are increasing in Thailand amid expectations of higher transportation and labor costs. The government will gradually remove subsidies on gas used to fuel vehicles and industry, and for households, Finance Minister Surapong Suebwonglee said last month. The minimum wage was increased in provinces across Thailand in June.
Higher rates in Thailand would come at a time when consumer confidence is at the lowest level this year amid intensifying anti-government protests. Thai Prime Minister Samak Sundaravej's ruling People Power Party faces legal challenges that may force it to disband, and the five-month old government has been the target of street protests since May 25.
Inflation Threat
``The hike probably will worsen the economic situation, but high and persistent inflation is worse,'' said Dwyfor Evans, a strategist at State Street Global Markets in Hong Kong. ``Allowing political volatility to overrule policy credibility sends a very poor signal to investors and they should avoid this at all costs.''
A quarter-point increase by the Bank of Thailand would be insufficient and wouldn't stem a decline in the currency, said Tim Condon, chief Asia economist at ING Groep NV in Singapore. The Thai baht is the worst-performing currency in Asia this year.
``The way things are now, I don't think a 25 basis-point rate hike is going to assuage the baht selling pressure,'' Condon said. ``To get inflation back under control, it will really require a tightening of policies. Much higher interest rates is what it will need.''
Bangko Sentral ng Pilipinas raised its key interest rate in June for the first time in more than two years. Deputy Governor Diwa Guinigundo said last week the central bank's ``bias is towards tightening.'' The authority is considering increasing its 2008 inflation forecast for a second time this year.
Philippine Inflation
The central bank will increase the benchmark rate by a quarter percentage point to 5.5 percent, according to 16 of 20 economists surveyed. Four expect a 50 basis-point gain.
Bangko Sentral last month lifted its estimate for inflation in 2008 to a range of 7 percent to 9 percent, from the original forecast of 4 percent to 5 percent. Consumer prices rose 11.4 percent in June from a year earlier, the steepest climb in 14 years.
Prices are set to increase further as transportation and fuel costs rise. The Philippine government approved higher transport fares last week to allow drivers and vehicle owners to cope with rising fuel prices.
``While some key food sectors like rice seem to have stabilized, the risks that broad commodity prices, especially energy prices, would stay stubbornly high have increased,'' said Simon Wong, an economist at Standard Chartered Bank in Hong Kong. ``We now expect more aggressive tightening.''
The following tables show economists' estimates for Thai and Philippine interest rates:
Thailand Benchmark Interest Rate
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July Aug. Oct. End of
Firm 16 27 8 2008
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Median 3.50% 3.75% 4.00% 4.00%
% Estimates at Median 84% 100% 83% 67%
High 3.75% 3.75% 4.00% 4.25%
Low 3.50% 3.75% 3.75% 3.75%
Number of Estimates 19 7 6 6
------------------------------------------------------
Action Economics 3.50% -- -- --
ATR-Kim Eng Capital 3.50% 3.75% 4.00% 4.00%
Brown Brothers Harriman 3.50% 3.75% 4.00% 4.00%
Capital Economics Ltd. 3.50% -- -- --
Capital Nomura Securities 3.50% 3.75% 3.75% 3.75%
Citi 3.75% -- -- --
Credit Suisse 3.50% -- -- --
HSBC 3.50% 3.75% 4.00% 4.00%
Ideaglobal 3.50% 3.75% -- --
ING Groep NV 3.50% -- -- --
JP Morgan Chase 3.50% -- -- --
Lehman Brothers 3.75% -- -- --
Moody's Economy.com 3.50% 3.75% 4.00% 4.25%
Morgan Stanley 3.50% -- -- --
SCB Securities 3.50% -- -- --
Standard Chartered Bank 3.50% -- -- --
Tisco Securities 3.50% 3.75% 4.00% 4.00%
UBS 3.75% -- -- --
UOB Group 3.50% -- -- --
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Philippines Overnight Borrowing Rate
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Policy Meeting July Aug. Oct.
Dates 17 28 9
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Median 5.50% 5.75% 6.00%
% forecasts at Median 80% 69% 55%
High 5.75% 6.25% 6.25%
Low 5.50% 5.50% 5.50%
Number of Estimates 20 13 11
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Action Economics 5.50% 5.75% 6.00%
ANZ Banking Group 5.50% 5.75% 5.75%
ATR-Kim Eng Capital 5.50% 5.75% 5.75%
BDO Unibank 5.50% 5.75% 6.00%
Brown Brothers Harrima 5.50% 5.75% 6.00%
Capital Economics 5.50% -- --
CIMB-GK Research 5.50% 5.75% --
Citi 5.75% -- --
Credit Suisse 5.50% -- --
DBS Group 5.50% 5.75% 6.00%
Forecast Singapore 5.75% -- --
Fortis Bank 5.50% 5.75% 6.00%
HSBC 5.50% 5.75% 6.00%
Ideaglobal 5.50% 5.50% 5.75%
ING Groep NV 5.50% -- --
Lehman Brothers 5.50% -- --
Moody's Economy.com 5.50% 5.50% 5.50%
Standard Chartered 5.75% 6.00% 6.25%
Thomson IFR 5.75% 6.25% --
UBS 5.50% -- --
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To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net
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