By Shamim Adam and Michael J. Munoz
July 15 (Bloomberg) -- Thailand and the Philippines are expected to raise interest rates this week, following other Asian countries in signaling their commitment to stem inflation that's sparked protests and threatened political stability.
Thailand's central bank will raise the benchmark interest rate for the first time in two years tomorrow, according to the 19 economists surveyed by Bloomberg News. The Philippines will follow suit, all 20 of the economists in a separate survey said.
``Asian central banks are shifting towards a more hawkish bias,'' said Vishnu Varathan, an economist at Forecast Singapore Pte. Those deemed not to be tackling inflation risk losing investor confidence, he said. ``We can expect higher interest rates in the weeks and months ahead.''
Surging oil and food costs are forcing central banks from Vietnam to Pakistan to raise borrowing costs and tame inflation, even at the cost of stifling growth, at a time when a U.S. slowdown is hurting demand for Asian exports. Thai stocks and bonds have fallen this year as investors flee emerging markets.
Thailand's SET Index has dropped 18 percent since Jan. 1, and the Philippine Stock Exchange Index is down 33 percent, the fourth-worst performer in Asia. Philippine bonds have lost 6.8 percent, the most among 10 Asian markets tracked by an HSBC Holdings Plc index. The returns on Thai bonds have fallen 1.6 percent, the fourth-worst in the gauge.
Fishermen in Japan, labor unions in Sri Lanka, truck drivers in India and students in Indonesia have held protests on surging fuel and food costs. Inflation in the region is expected to reach a decade-high this year, the Asian Development Bank said in April.
Indonesia, India
Indonesia raised its benchmark rate for a third straight month in July, and 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 one-day bond repurchase rate 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.
Thai consumer prices gained 8.9 percent last month, the fastest in a decade. The Finance Ministry in June raised its inflation forecast for this year to 7.2 percent from an earlier prediction of 4.5 percent, and said inflation is ``a major threat to growth.''
Political Turmoil
Higher rates in Thailand would come at a time when consumer confidence is at the lowest level this year amid intensifying anti-government protests. 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.
``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.
``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.''
Baht, Peso
Thailand's baht rose 0.6 percent to 33.47 per dollar as of 11:17 a.m. in Bangkok, according to Bloomberg data. The Philippine peso advanced to as high as 45.08 per dollar in Manila today, according to Tullett Prebon Plc.
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 bank's ``bias is towards tightening.''
The central bank will increase rate it pays banks for overnight deposits 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 is considering increasing its 2008 inflation forecast for a second time after lifting the estimate last month to a range of 7 percent to 9 percent. Consumer prices rose 11.4 percent in June from a year earlier, the most in 14 years.
``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% -- -- --
------------------------------------------------------
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
-------------------------------------------
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%
[bn:PRSN=1] 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% -- --
-------------------------------------------
To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net
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