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INSTANT VIEW 3-Thai Sept inflation jumps; BOT rates seen on hold

BANGKOK, Oct 1 (Reuters) - Annual inflation in Thailand jumped to 3.38 percent in September from 2.69 percent in August but that was due in part to a low base last year and inflationary pressures are generally under control, so economists do not expect interest rates to rise.

Most expect the Bank of Thailand to keep its policy rate unchanged at 3 percent for the rest of this year. It cut the rate in November last year and in January to help the recovery from devastating floods but there has been no change since.

Data last week showed weakness in both exports and manufacturing output, but the central bank says strong domestic demand is supporting the economy and it has expressed concern about credit growth, supporting the view rates will not be cut either.

Core inflation, which strips out energy and fresh food prices, guides monetary policy. It edged up to 1.89 percent in September from 1.76 percent in August but remains well inside the central bank's target range of 0.5-3.0 percent.

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KEY POINTS:

- Headline CPI +3.38 pct in Sept y/y vs +2.69 pct in Aug (Reuters poll +3.2 pct)

- Core CPI +1.89 pct y/y in Sept vs +1.76 pct in Aug (Reuters poll +1.8 pct)

- Food/drink prices +3.66 pct y/y in Sept vs +4.02 pct in Aug - For a table of the data - Graphic: http: - For Reuters poll - - - - - COMMENTS: GUNDY CAHYADI, ECONOMIST, OCBC

"I think the central bank, especially the governor, has been rather hawkish in regards to how the inflation trajectory looks going forward, and I think these figures support that view.

"The general expectation we have is that the Bank of Thailand will probably not make any rate cut despite a lot of pressure coming in from the political front. Some analysts are saying maybe there's a chance for them to cut rates, especially when we look at recent data from Thailand -- manufacturing production has been quite bad, exports largely disappointing, there's a lot of risk to the downside to growth.

"But having said that, at this juncture we don't expect economic growth to be any lower than 5 percent for 2012. Our focus remains 5.5 percent and that's largely in line with what the BOT is viewing."

- - - - NUCHJARIN PANARODE, ECONOMIST, CAPITAL NOMURA SECURITIES

"We think the higher-than-expected figures on both headline and core CPI will give the monetary policy committee a headache at the next meeting because on the one hand we see slowing exports and, on the other, rising inflation in September.

"But we still expect the BOT will leave the policy rate on hold at 3 percent at the next meeting. We expect the bank will maintain the rate at 3 percent until year-end but with some downside risk. But, for the moment, we think domestic demand is still a supporting factor that should help cushion the Thai economy."

- - - - USARA WILAIPICH, SENIOR ECONOMIST, STANDARD CHARTERED

"September's inflation was higher than expected, but due partly to the last year's favorable base effect. If pressures gain further momentum, this will complicate monetary policy decisions, should downside risks to growth intensify later on.

"Even so, we reckon that risks to growth will continue to outweigh inflation risks."

- - - - MARKET REACTION:

- The baht was at 30.83/86 per dollar after the data came out versus 30.86/88 in midmorning.

- The benchmark stock market index was up 0.1 percent after the data came out. It was down 0.07 percent shortly before.

- - - - - CONTEXT

- Thailand's inflation has been relatively contained, held down by government price controls and subsidies on energy, utilities and public transport, plus a slowdown in the global economy.

- The Bank of Thailand (BOT) has forecast headline inflation of 2.9 percent for this year and core inflation of 2.2 percent.

- The central bank aims to keep core inflation, which strips out more volatile fresh food and energy prices, in a range of 0.5-3.0 percent and it sets monetary policy to achieve that.

- The BOT left its benchmark interest rate at 3 percent for a fifth meeting on Sept. 5 after cutting it in November and January to help business, which suffered during devastating flooding last year. [[ID:nL4E8K414Q]

- The central bank says it is ready to adjust the policy rate if needed. However, Governor Prasarn Trairatvorakul said recently that cutting rates to support economic growth could undermine financial stability as credit growth is already strong.

- Many economists do not expect any change in rates for the rest of 2012 due to strong domestic demand. But a few think a rate cut is possible, particularly after sharper-than-expected falls in August factory output and exports.

- The BOT said last week it planned to trim its already scaled-down export growth forecast of 7 percent for this year. But it has said its 2012 economic growth projection of 5.7 percent could still be achieved. In 2011, the economy grew just 0.1 percent due to heavy flooding late in the year.

(Reporting by Bangkok Newsroom; Editing by xxxx)

((orathai.sriring@thomsonreuters.com)(+662 6489729)(Reuters Messaging: orathai.sriring.reuters@reuters.net))

Keywords: THAILAND ECONOMY/CPI