The comments fuelled market expectations of higher inflation and more interest-rate hikes after the central bank slightly raised its core-inflation forecasts for 2011 and 2012 yesterday.
"Inflationary risk is higher than the risk to economic growth," said BOT Assistant Governor Paiboon Kittisrikangwan.
The panel yesterday revised upwards its forecast for core inflation to 2.4 per cent this year from the previous forecast of 2.3 per cent. Next year's estimate was also raised to 2.3 per cent from an earlier projection of 2.1 per cent. The monetary authorities cited the likelihood of rising inflationary pressure in the second half of the year due to increased pass-through of costs to consumers and rising pressure on demand amid robust domestic growth.
The MPC is maintaining its forecasts for headline inflation and economic growth. Headline inflation is estimated at 3.9 per cent this year and 3.2 per cent next year. Thailand's economy is expected to grow 4.1 per cent this year and 4.2 per cent in 2012.
The committee expects Thailand to see more economic momentum in the latter half of this year than in the second quarter, Paiboon said, citing the likelihood of higher exports after the supply disruption from Japan's crisis.
It also expects increases in private investment and private consumption on the back of accommodative interest rates and satisfactory loan expansion.
The estimates for inflation and next year's growth rate do not take into account the incoming government's policies, Paiboon said.
"If the state's policies are clearer, forecasts could be revised," he said.
The new government's pledge for an increase in minimum wages has a direct impact on production costs. If wages rise sharply and are not in line with the level of labour productivity, that will have a large impact on inflation, Paiboon said. Additional economic stimulus measures could add to inflationary pressure, he added.
Currently, inflationary pressure remains high because of continued investment and consumption and pass-through of rising costs to product prices.
"Even though the policy rate has been raised continuously from last year, the real interest rate remains negative," he said. Roughly, the real interest rate equals the policy rate minus consensus-expected inflation on average for a year.
Other issues being monitored include global economic expansion, domestic economic stability, future fiscal policy and household debt.
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