By Seetalavajit Sabayjai

The governor of the Bank of Thailand has signalled that there will be no increase in the policy rate in the next six months, given stable inflation expectations.

"Inflation expectations remain stable as per the BOT survey. Inflation is unlikely to be a serious problem in the next six months. There won't be a need for any broad-based measures," BOT Governor Prasarn Trairatvorakul said after attending a Cabinet meeting with Prime Minister Yingluck Shinawatra on economic issues yesterday. The broad-based measures include the policy rate and taxation.

However, the central bank has to monitor crude-oil prices and government measures, including increases in minimum wages and salaries, and government expenses.

The Dubai crude-oil price has risen to about US$120 per barrel on tensions in the Middle East.

Because of the current high oil price, there could be specific measures to alleviate people's troubles in the short term, Prasarn said.

These might include postponement of the reduction in government relief measures for heavy oil users.

Prasarn expected the oil price to be high only in the short term.

Headline inflation stayed at 3.35 per cent in February and core inflation, excluding energy and fresh food, was 2.72 per cent in the same month.

"Inflation is within our target," Prasarn said, noting that food prices would likely decline thanks to improvements in agricultural production and logistics after last year's floods.

Regarding the inflation-targeting framework, the central bank is in discussions with the Ministry of Finance at the officer level before bringing the preliminary results for discussion at the Monetary Policy Committee meeting on March 21 next Wednesday.

"Personally, I think it may be proper to use headline inflation, which includes the prices of energy and fresh food, as it is easier to communicate it to people. But I understand the government is considering the energy-restructuring process, which could have an impact on calculation of the inflation-targeting framework.

"So another alternative the central bank may propose is to use core inflation for the framework for one or two years before switching to use headline inflation," Prasarn said.

Meanwhile, the BOT will likely start investing in China's exchange and interbank bond market after being approved as a qualified institutional investor in that country.

The Thai central bank has received a permit from authorities to invest up to US$300 million (S$380 million) in China's exchange. Given Thai laws, "the BOT is allowed to invest in bonds only", Prasarn said.

In addition, the BOT is allowed to trade in China's interbank bond market for US$1 billion.

The planned investment in China is aimed at diversifying foreign-exchange reserves in a foreign currency other than the US dollar that has a certain level of stability and is expected to play a vital role in the future.