THB implications of Thai inflation targeting

The BOT''s outline for inflation targeting appears, on the whole, to be sensible. However, the new monetary policy framework does not alter the view that USD/THB will trade higher to 43.0 by year-end.

The concept of inflation targeting is becoming increasingly popular in Asia. The latest convert is the Bank of Thailand BOT which has unveiled details of its move to formal inflation targeting. It will target a core rate of inflation and have a target band which for the 2000-2002 period will be 0.0-3.5%, and may be subsequently revised. The BOT also formalized its main interest rate tool as the 14 day repurchase rate, which currently measures 1.5%.

The BOT plan contains some encouraging elements.

Crucially, the BOT has targeted an appropriate measure of inflation in the core rate, which currently measures around 1.0% in yy terms headline CPI rose 1.17% yy in...

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