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Bangkok Post
Bangkok Post
Business

Manufacturers brace for policy rate hike

Manufacturers are bracing for a higher policy rate, expected to be approved by the Bank of Thailand, by further cutting their expenses and increasing working capital, according to the latest poll conducted by the Federation of Thai Industries (FTI).

Factory owners are already struggling to deal with increasing production costs, following the global oil price surge, driven by the Russia-Ukraine war.

The new interest rate, together with the weaker value of the baht, are keeping them more alert to economic uncertainties.

"Most of them agreed with a plan to cut business operation expenses," said Montri Mahaplerkpong, vice-chairman of the FTI, referring to 33% of 209 company executives interviewed.

The respondents are working in 45 industries under the FTI.

Some 19.6% told the pollster they would increase working capital while 18.7% would focus more on better cash flow management by replacing overdraft loans with long-term loans.

Some 18.7% said they need to delay investment plans if the interest rate increases.

Another group of 18.7% preferred changing investment plans by, for example, raising funds from shareholders in companies.

The remaining 2.8% said they would try other methods to cope with the higher interest rate, according to the findings.

Mr Montri said the FTI believes the central bank will follow the US Federal Reserve (Fed) to raise the policy rate to mitigate soaring inflation in Thailand.

The Trade Policy and Strategy Office under the Commerce Ministry reported earlier this month that headline inflation in June, gauged by the consumer price index, stood at 7.66% year-on-year from June 2021, hitting a near-14-year high.

In June, the Fed also decided to increase the benchmark interest rate by 0.75%, the biggest rise since 1994. The Fed is expected to make further increases, pushing the rate above 3% this year.

The central bank's Monetary Policy Committee (MPC) is expected to raise the rate by 25 basis points at its next meeting in August.

On June 8, the MPC meeting voted 4-3 to maintain the policy rate at its existing level of 0.5%, where it has been since May 2020.

Raising the interest rate is needed to narrow the difference between Thai and foreign interest rates in order to avoid impacting capital transfer and the baht's value, said Mr Montri.

When asked what state measures manufacturers need to relieve the impact of higher interest rate, most of them (52.6%) want the government to gradually increase the interest rate, followed by soft loan programmes (52.2%) and debt restructuring and fixed-rate loans (45.5%).

Mr Montri also stressed the need to control the baht at appropriate levels as a weaker baht will increase the costs of imported energy and raw materials.

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