Korn recommends BoT change monetary policy

The Bank of Thailand (BoT) should adjust its monetary policy now the cabinet has approved a change in the inflation-base target for 2009 from zero to 3.5 per cent to 0.5 to 3.0 per cent, Finance Minister Korn Chatikavanij said on Wednesday.

Mr Korn said he did not want to direct the central bank to cut its policy interest rate, but felt the BoT's monetary policy should be in line with the fiscal policy of the Ministry of Finance.

“The new inflation-base target was proposed by the BoT and the cabinet approved it. Therefore the Monetary Policy Committee of the central bank should adjust its monetary policy in line with the fiscal policy,” he said.

The minister agreed that over past months the monetary policy of the BoT was in line with the government’s policy for tackling economic problems.

The central bank had already cut its repurchase rate by 2.5 per cent to help shore up the economy, he said.

In addition, he said the government could not cut corporate tax rates as proposed by the private sector because of the drop in revenue collection.

Speaking at a gathering to celebrate the 94th anniversary of the Revenue Department, Mr Korn said the recovering economy had helped raise the government revenue in the past three or four months.

The government earlier predicted the economic downturn would reduce this year's revenue collection by 300 billion baht, but the shortfall might now be only 170 billion baht, he said.

"The financial position has improved and the government expects revenue collection for fiscal year 2010 to be 1.35 trillion baht, with an expenditure budget of about 1.7 trillion baht and a budget deficit of 350 billion baht," he said.

"The private sector's call for the government to reduce corporate tax rates by 25 per cent cannot be done yet because the government's expenditure is still high and it will have to work with budget deficits for many more years," he said.

He said expected there would be a balanced budget in 2015.

Meanwhile, the BoT reported that core inflation should stand at 0.3 per cent in the fourth quarter of this year and 1.4 per cent for the entire year.

The 0.3 per cent projection was still lower than the new inflation target of 0.5 to 3.0 per cent, BoT assistant governor for the monetary policy group Paiboon Kittisrikangwan said.

Core inflation should be within the inflation target by the end of 2010, he said.

The Monetary Policy Committee had maintained the policy interest rate because it viewed that the core inflation would be within target in the future, he said.

It would not be necessary for the committee to adjust the policy interest rate until there was new economic information to consider.

"The committee is responsible for keeping inflation within projection by using appropriate measures, but it would not respond to the movement of inflation by adjusting the policy interest rate all the time because inflation is a temporary phenomenon," Mr Paiboon said.

He said adjusting interest rates could create unnecessary fluctuations.

"The BoT and the Finance Ministry will meet at the end of 2009 to determine the new inflation target for next year even though countries that have an inflation target policy do not change it regularly as it may create confusion.

"Some countries may want to stimulate the economy in the short term but they could face problems in the long run and the growth would not be sustainable. As for Thailand, we have to create price stability because it is a condition for a sustainable economic growth," the banker said.

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