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Thai interest rate hiked as Asia fights rising prices

Thailand is the latest Asian economy to raise interest rates, as the region grapples with rising consumer prices.

The Bank of Thailand has raised the cost of borrowing from 2.25% to 2.5%, the fifth rise since July of last year.

Rising costs of oil and food have pushed up retail prices in the region.

South Korea's Central Bank will meet on Thursday to set its rates, while China is due to report its inflation figures on Friday.

As prices of food and other essential commodities continue to rise, central banks are having to strike a fine balance between maintaining growth and reining in prices.

Consumer prices in Thailand are being kept in check by government subsidies on oil and some staple food items, but inflation hit 2.9% in February.

The government has said it will continue to subsidise the price of diesel until the end of April and expand its guarantee scheme for rice prices.

However analysts have warned that this is only a temporary solution to keep prices in check.
Tightening policy

South Korea's central bank is also expected to tighten its monetary policy when it meets on Thursday.

South Korea's inflation rate hit a 27-month high of 4.5% in February, driven by rising food and fuel costs.

That, coupled with the better-than-expected rise in industrial production and exports, has led the analysts to forecast a rise in the cost of borrowing by 25 basis point to 3%.

Inflation numbers from China will be watched closely on Friday.

Rising consumer prices in the mainland have forced the central bank to raise the interest rates three times in the past four months.

The inflation rate reached 4.9% in January and any significant increase in that number may see the central bank taking action again.
Bucking the trend

While major economies in Asia-Pacific are gearing up for higher cost of borrowing, New Zealand's central bank may be moving in the opposite direction.

It is likely to cut the cost of borrowing as the country comes to grip with the devastation caused by the earthquake in Christchurch.

As the estimates of rebuilding costs rise, there have been calls for the Reserve Bank to lower the interest rate, not least from the country's Prime Minister, John Key.

The Treasury department said that quake recovery would cost the country NZ$15bn ($11bn; £7bn).

The Reserve Bank has held interest rates at 3.0% since July 2010 as the economy struggles to shake off the impact of a lengthy recession.

BBC News

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