Policy rate may be cut to boost economy : BOT

[SteveCM]

Policy rate may be cut to boost economy : BOT - The Nation

Seetalavajit Sabayjai
The Nation November 19, 2011


Amid calls for a cut in the policy rate to shore up the economy after the flood crisis, the Bank of Thailand governor yesterday signalled that the benchmark rate, which is close to normalisation, could be lowered at the Monetary Policy Committee meeting on November 30.

"Inflation expectations now are stable" and the central bank will work to maintain business and consumer confidence, Prasarn Trairatvorakul said.

Headline inflation is forecast at 3.8 per cent this year. The estimate for next year's headline inflation is 3.5 per cent, and the policy rate currently is also 3.5 per cent. "That leaves some room for accommodating" policy, Prasarn said.

The BOT's MPC held the policy rate at 3.5 per cent in October, after a series of rate rises since July last year.

The MPC has been closely monitoring inflation expectations and confidence of consumers and businesses. Domestic consumption and production, especially of automobiles, are expected to stage a comeback next quarter, Prasarn said.

"In the first quarter of 2012, consumption is likely to make a recovery after many projects were postponed because of the floods in the fourth quarter of 2011," he said.

The flood crisis "is likely to end this month or next and restrained [expenditures] like car purchases, house repairs and other consumption are expected to come back in January and February", aside from the fiscal boost, he said.

After the floods recede, many business activities such as machinery replacement, purchases of parts, and plant overhauls are also expected. Some of those business activities could be partly financed by insurance payments.

Of the Bt700 billion in expected total insurance compensation, actual flood damages account for about Bt200 billion, according to the Flood Relief Operations Centre. "This amount is not high in US dollar terms," Prasarn said.

He added that fluctuations in the financial markets and the baht had resulted from major economies' unclear solutions to their debt problems.

"Investors are reluctant to hold risky assets, and that is good for not building up pressure to strengthen the baht," he said.

The Western economic problems will not affect Thailand much because of its high foreign reserves and sound economic fundamentals, he said.

Prasarn also expressed no concern over the depreciating baht, which now is about 31 per US dollar. This year, the central bank could see foreign exchange gains from the account, backing note printing, due to the baht's slight depreciation, from the beginning of this year to now, and that would allow it to pay back the Financial Institutions Development Fund's debts.

Recently business communities have called for a policy-rate cut to boost an economy affected by severe flooding. Finance Minister Thirachai Phuvanatnaranubala earlier also called for the central bank to take into account the weak world economy and other factors and not focus solely on inflationary pressure.

[SteveCM]

Bangkok Post : Kittiratt: BoT should review interest policy

• Published: 21/12/2011 at 04:08 PM
• Online news: News

The Bank of Thailand's monetary policy committee should reconsider whether its decision to cut the repurchase rate by only 0.25 percentage points recently was appropriate in the current situation, Commerce Minister Kittiratt Na-Ranong said Wednesday.

Mr Kittiratt said this before attending a seminar on "Reinvent Thailand" organised by Krungthep Turakij, a daily Thai-language business newspaper.

The country had been severely damaged by the great flood and the industrial sector needs loans for rehabilitation, he said.

The minister advised business leaders to clearly show their standpoint on this matter.

Deputy Prime Minister and Commerce Minister Kittiratt Na-Ranong (Photo by Kosol Nakachol)

"I do not want to interfere with the central bank's work. This is my personal point of view but I am calling on the BoT to review its monetary policy," he said.

Asked about the government's free train and public bus travel policies, Mr Kittiratt said if these populist programmes are continued it could affect behaviour of people in the long term.

Implementation of any policy must be in line with the people's income, which would increase when the government's economic stimulus measures are all implemented, he added.

The Thailand Development Research Institute's Somchai Chitsuchon said at the "Reinvent Thailand" seminar that the government's plan to raise the daily minimum wage of workers in Bangkok and six other provinces to 300 baht in April 2012 should be delayed because manufacturers were severely affected by the great flood.

Mr Somchai said the government must consider implementing the wage hike policy at a more appropriate time.

"The increase in the daily minimum wage must be suited to the market mechanism and the skills of workers must also be improved,” he said.

He suggested that the daily minimum wage should be gradually raised, step-by-step, at an average of 20 per cent each time.

Pattamawadee Suzuki of Thammasat University's faculty of economics took the same tone.

She said the daily minimum wage in Bangkok and nearby provinces should not be raised at this time because these provinces are in need of rehabilitation.

At the same seminar, National Economic and Social Development Board secretary general Arkom Termpitayapaisit said gross domestic product growth for 2012 is now projected at between 4.5 and 5.5 per cent.

Mr Arkom said economic expansion next year will be boosted by the government's post-flood projects to rebuild the country, particularly the water resource management project.

The production sector is expected to resume production lines soon and exports will rise as a result, he said.

In addition, the Asean Economic Community will start opening markets from 2012 onwards and this would be a positive factor in mobilising the Thai economy, he said.