AGRIBUSINESS

SOMRUEDI BANCHONGDUANG

Falling crop prices should help reduce inflationary pressure in the near future, said Prasarn Trairatvorakul, the president of Kasikornbank.

Agricultural commodities prices are closely tied with food prices, which in turn comprise a key component in the consumer price index.

Inflation, as measured by the CPI, rose to a 10-year high in July at 9.2% year-on-year, up from 8.9% the previous month. Gains were primarily driven by higher energy and food prices. ''Agricultural crop prices have risen sharply with oil prices,'' Dr Prasarn said at a conference on food security yesterday.

''The price increases however have overshot fundamentals and market expectations, partly due to speculation.''

Benchmark rice prices have recently dropped to $700 per tonne in the export market, down from nearly $1,100 in April.

Dr Prasarn said any decline in commodities prices would affect loan growth for the banking sector, but that Thai banks are expected to post 5 to 6% growth for the year thanks to a strong first half.

New lending has been primarily for working capital, as companies have sought to raise credit lines to cope with higher commodities and raw materials prices. For the first half, KBank posted loan growth of 10%, and maintains a full-year loan growth target of 12 to 15%.

Dr Prasarn, a former central bank official, added that the policy conflicts between the Bank of Thailand and Finance Ministry over interest rate trends was undermining business confidence.

''Disagreements over monetary policy are leading to market confusion, which in turn affects investor confidence and business decisions,'' he said.

The central bank has been tightening monetary policy in hopes of clamping down on inflation, a stance that has drawn sharp criticism from the Finance Ministry which argues that higher interest rates will only depress economic growth.

Sumet Laomoraporn, the managing director of C.P. Intertrade Ltd, said the rise in agricultural product prices over the past year had been a significant benefit for the country.

By Bangkok Post On 15 Aug 2008

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