Bank of Thai­land un­fazed by call for rate cut

The Jakarta Post - - FRONT PAGE - Wi­chit Chaitrong

The Bank of Thai­land is con­fi­dent on the coun­try’s out­look for eco­nomic growth, de­spite the con­cerns over a strong baht that prompted a call by the Fi­nance Min­istry for a cut in in­ter­est rates.

The Fi­nance Min­istry this week urged the cut in rates in or­der to ease up­ward pres­sure on the baht.

But Bank of Thai­land gover­nor Veerathai San­tiprab­hob said a re­duc­tion in in­ter­est rates would not de­ter the cap­i­tal in­flows that have been push­ing up the cur­rency.

Veerathai said in­vestors had shown con­fi­dence in the re­cov­ery of the econ­omy and thus an in­ter­est rate cut would be un­likely to slow the pace of baht ap­pre­ci­a­tion.

He said the spread be­tween Thai in­ter­est rates and those in other coun­tries may not de­ter cap­i­tal in­flows as in­vestors are also mo­ti­vated by other fac­tors in ad­di­tion to yield, not­ing that shorter-term bond yields are lower than the pol­icy rate of 1.5 per­cent.

He said the cen­tral bank had been closely watch­ing ex­change rate move­ments and is ready to in­ter­vene in the mar­ket when the baht rises too strongly in the short term, as this would af­fect con­sump­tion and the whole econ­omy.

How­ever, the cen­tral bank can­not fight the trend and ex­porters have to learn how to hedge against ex­change rate volatil­ity.

"The prob­lem is US dol­lar weak­ness. It has de­pre­ci­ated by 10 per­cent while the baht moved up by 7 to 8 per­cent from early this year,” Veerathai said.

“This sug­gests other cur­ren­cies have ap­pre­ci­ated more than the baht.”

Veerathai was con­fi­dent that the baht would move in line with other re­gional cur­ren­cies and thus re­sult in the coun­try not be­ing at an ex­port dis­ad­van­tage with com­peti­tors.

He said that while the in­fla­tion rate is lower than tar­geted, the coun­try was not ex­pe­ri­enc­ing de­fla­tion as the econ­omy is still grow­ing.

Sep­a­rately, the United Na­tions Con­fer­ence on Trade and De­vel­op­ment (UNCTAD) — wor­ried about the sus­tain­abil­ity of the global re­cov­ery — has called for an end to aus­ter­ity and for more spend­ing to boost de­mand like the New Deal af­ter World War II.

“The world econ­omy is pick­ing up but not lift­ing off,” UNCTAD econ­o­mist Padma Gehl Sam­path said yes­ter­day dur­ing the pre­sen­ta­tion of UNCTAD’s “Trade & De­vel­op­ment Re­port 2017” at a press con­fer­ence called by Unctad and the In­ter­na­tional In­sti­tute for Trade and De­vel­op­ment in Bangkok

She said the ques­tion is where de­mand will come from in the next few years. De­mand in In­dia and China is ro­bust but now China is fac­ing chal­lenges in bal­anc­ing its econ­omy.

Lower in­ter­est rates in the eu­ro­zone are in­suf­fi­cient, as many still can­not find jobs, she said.

Thai­land also has many chal­lenges, as its econ­omy has been weak­ened af­ter the 1997 fi­nan­cial cri­sis.

Aus­ter­ity is not the so­lu­tion for Thai­land. The gov­ern­ment has run fis­cal deficits but rev­enue also de­creased, so the gov­ern­ment needs to think about get­ting more rev­enue.

“Stop cor­po­rate tax sub­si­dies but tax com­pa­nies, par­tic­u­larly large firms,” Sam­path said, re­fer­ring to a bal­ance be­tween the ben­e­fits of for­eign di­rect in­vest­ment and the lo­cal econ­omy.

“FDI is good for the coun­try but the gov­ern­ment of­fers multi­na­tion­als com­pa­nies a tax hol­i­day of eight to 10 years. That’s too long.”

Thai­land also needs to strengthen its anti-trust law to min­i­mize mar­ket mo­nop­o­lies by large firms.

Thai­land is draft­ing a new an­titrust law.

Thai­land has to diver­sify ex­ports by in­creas­ing tech­no­log­i­cal con­tent.

So far Thai­land’s au­to­mo­bile in­dus­try is driven by semi­skilled la­bor does bet­ter, she added.

Unctad fore­casts global gross do­mes­tic prod­uct to ex­pand 2.6 per­cent this year, up from 2.2 per­cent last year.

Thai Fi­nance Min­istry urged rate cut to ease up­ward pres­sure on baht Rate cut would be un­likely to slow pace of baht ap­pre­ci­a­tion: Cen­tral bank

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