MPC leaves key rate unchanged

       The Bank of Thailand is optimistic about a global recovery but warns that weak local consumer purchasing power and unfinished reform of the US financial sector make the outlook highly risky.
       The central bank's Monetary Policy Committee yesterday maintained the one-day repurchase interest rate, which has been at 1.25% since April. It said the Thai economy had a more positive trend thanks to manufacturing, exports,employment and private consumption.
       Paiboon Kittisrikangwan, a central bank assistant governor for the monetary policy group, said that the G-3 and Asian economies improved between April to June from the first three months and they exceeded the MPC's expectations in mid-July.
       But overhanging bad loans and capital problems following the sub-prime mortgage crisis remain an obstacle in the US and European financial sectors constraining the global economy. The price of crude is another risk as it has risen quickly over the past month.
       "The MPC saw no need to adjust the interest rate for the moment. The first lot of government bonds worth 80 billion baht has marginally pushed bond yields up. The MPC will ensure liquidity is accommodative to borrowing, should there be a need," said Mr Paiboon.
       He said the MPC was concerned that inflation would accelerate in the world economy if Dubai oil prices pass $75 per barrel. But it would monitor whether a price rise was driven by an increase in global demand or by speculation.
       Mr Paiboon said the Chinese economy would minimally benefit the global economy as a considerable portion of its exports are aimed at the US market.Home sales and manufacturing production were positive signs for the US economy, but unemployment is expected to lag manufacturing and consumption in the US, he said.
       Thanomsri Fongarunrung, an economist at Phatra Securities, said that the recent upswing in the US economy came from aggressive fiscal and monetary expansion, but the real economy has not built on the momentum.
       "We can be comfortable that the global economy has reached the bottom because of government and Federal Reserve actions. But recovery signs related to economic momentum have been unclear," she said.
       Ms Thanomsri said a factor supporting the Thai economy was the government's subsidies for utility bills and its spending on consumers.
       "The government should increase spending in the future to help build momentum for the economic recovery.But I am worried about whether the projects will generate enough return in the future to serve repayment of public debt," she said.