Monetary

 

   

Overall economy in July 2008 continued to expand from the previous month. Both consumption and investment indicators improved, corresponding with a notable acceleration in imports. Meanwhile, exports still expanded markedly. On the supply side, major crops production and price grew well, resulting in an accelerated farm income. Manufacturing production increased at a rate close to that of the previous month. Nonetheless, tourism sector somewhat slowed down.

External stability remained sound, in line with high level of international reserves. Regarding internal stability, both headline and core inflation remained high.

 

International Reserves

Year

2003

2004

2005

2006

2007p

2008 p 1/

Billion US$

42.1

49.8

52.1

67.0

87.5

104.7

Source: Bank of Thailand

 

Prime Minimum Loan Rates

Year

2003

2004

2005

2006

2007p

2008p1/

Rate
%

5.50-5.75

5.50-
  5.75

6.50-6.75

7.50-8.00

6.85-7.13

7.25-7.50

Average of five largest commercial banks.

Source: Bank of Thailand

 

Details of the economic conditions in July 2008 are as follows:

1 The Manufacturing Production Index (preliminary) rose by 10.9 percent year-on-year (yoy), comparable to the rate of 11.2 percent (yoy) in the previous month. Export-oriented productions continued to expand satisfactorily, in line with external demand. This included productions of electronics, vehicles, food, and iron and steel products. The capacity utilization rate in July 2008 stood at 71.9 percent, lower from 73.1 percent in the previous month. This was due partly to capacity expansion in electronics industry. When seasonally adjusted, the rate was close to that of the previous month.

2 Private Consumption Index (PCI) increased by 9.3 percent (yoy). This stemmed from an acceleration in VAT at constant price and an increase in imports of consumer goods at constant price. At the same time, passenger car sales also observed a satisfactory growth rate, and motorcycle sales expanded well in line with the continuous improvement in farm income. Private Investment Index (PII) (estimated) increased by 3.9 percent (yoy), improving from last month. This was due mainly to an acceleration in imports of capital goods at constant price.

3. Fiscal Position. The government's gross revenue collection was 124.9 billion Baht, increasing by 12.6 percent (yoy). This mostly followed tax revenue which grew by 14.4 percent (yoy), in line with expansion in most tax bases. In particular, consumption tax drove up, as a result of increased VAT collection from import expansion and higher domestic prices. Excise tax rose, mainly in line with tax collected on liquor. This was due to production hoarding as producers expected liquor tax ceiling to adjust upward. Meanwhile, specific business tax declined because of the measure to reduce specific business tax on property transactions as well as lower tax income based on financial institutions' transactions. The government's cash balance recorded a deficit of 31.2 billion Baht, with net repayment of 30.5 billion Baht. Consequently, the treasury cash balance at end-July was 127.2 billion Baht, lower by 61.7 billion Baht from the previous month.

4. External Sector. Despite a large export expansion, the trade balance was in a deficit of 762 million US dollars as import accelerated considerably. Export value totaled 16,787 million US dollars, growing by 43.9 percent (yoy), largely from export volume. Agriculture category continued to observe favorable growth, particularly rice and rubber exports. Manufacturing category rose well, in line with exports of petroleum products, vehicles, computers, as well as precious stone and jewelry which benefited from an increase in gold exports. Meanwhile, import value totaled 17,550 million US dollars, increasing by 53.4 percent (yoy), mainly from import volume. Import price increased at a rate close to that of the previous month, while import volume accelerated across all categories, particularly raw materials and capital goods. This corresponded with the increase in exports. Moreover, fuel and lubricant category saw an increase in crude oil import compared to the preceding month, as some oil refineries resumed normal operation. Import of liquefied petroleum gas (LPG) also picked up, following greater domestic demand for use as vehicle fuel.

 

Services, income, and transfers account recorded a surplus of 208 million US dollars. Together with the trade balance deficit, the current account registered a deficit of 555 million US dollars. According to preliminary data, net capital flow1/ in July 2008 was in a deficit of 1,799 million US dollars. This mostly followed the outflows of both Thai and foreign portfolio investment. Consequently, the balance of payments was in a deficit of 680 million US dollars. International reserves as of end-July 2008 stood at 104.8 billion US dollars with a net forward position of 16.6 billion US dollars.

1 Headline inflation remained at a high level of 9.2 percent (yoy), in line with prices of raw food and energy. Higher production costs were thus passed on to prices in non raw-food-and-energy categories. This was in spite of downward adjustment of retail oil prices, towards the end of month, following world market prices and government's excise-tax reduction policy. Consequently, core inflation increased to 3.7 percent (yoy). Price increases were observed in the categories of prepared food at home and food away from home, shelter, and public transportation services. The Producer Price Index (PPI) rose by 21.2 percent from the same period last year, due to increases in all categories.

 

Inflation

2008p

2007p

2006

2005

2004

2003

  Headline Consumer Price Index (2002=100)

123.9

117.0

114.4

109.3

104.6

101.8

      (% change)

6.6

2.3

4.7

4.5

2.7

1.8

  Core Consumer Price Index (2002=100) 2/

107.8

105.6

104.5

102.2

100.6

100.2

     (% change)

2.4

1.1

2.3

1.6

0.4

0.2

 

2 Monetary Conditions. Deposits of depository corporations2/ declined by 1.7 percent (yoy). However, when taking into account Bills of Exchange which were similar to deposits, the deposits expanded by 1.8 percent (yoy). Private credits grew by 10.3 percent (yoy), continuing to accelerate from the preceding month in line with an increase in the credits extended to business sector.

Monetary base, at end-July 2008, rose by 8.5 percent (yoy), while broad money contracted by 1.2 percent (yoy). Nonetheless, when taking into account Bills of Exchange issued by commercial banks, broad money expanded by 2.3 percent (yoy).

Money market interest rates adjusted slightly upward. The 1-day repurchase rate and the overnight interbank rate averaged at 3.38 and 3.35 percent per annum, respectively. This corresponded with the MPC's decision, on 16 July 2008, to raise the policy rate by 0.25 percent per annum to 3.50 percent per annum.

From 1-25 August 2008, the 1-day repurchase rate and the overnight interbank rate averaged at 3.50 and 3.49 percent per annum, respectively.

Exchange Rate and Nominal Effective Exchange Rate (NEER). In July 2008, the Baht averaged at 33.50 Baht per US dollar, depreciating from the June's average of 33.20 Baht per US dollar. This was in line with importers' demand for US dollars, particularly oil companies. This was accompanied by foreign investors' continual outflows from the stock exchange as well as the weakening of the Baht against major currencies such as the US dollar and Euro. As a result, the NEER declined from 76.76 in the previous month to 75.68.

 

Exchange rate

2008p

2007p

2006

2005

2004

2003

      Baht : US$ (Reference rate) average (Baht : 1 USD)

33.50

34.56

37.93

40.27

40.27

41.53

 

From 1-25 August 2008, the Baht depreciated slightly further to an average of 33.78 Baht per US dollar. This was attributed to the continuation of steadily-enhanced confidence towards the US dollar as well as importers' demand for US dollars.

 

Source: Bank of Thailand  / Updated 9 September 2008

 

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