Bangkok Post : Key interest rate sliced to 2%

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Key interest rate sliced to 2%

BoT: Inflation may be negative this year

By: PARISTA YUTHAMANOP

Published: 15/01/2009 at 12:00 AM

Newspaper section: Business

The Monetary Policy Committee yesterday cut its key interest rate by 0.75 percentage points to 2% in a bid to jumpstart the ailing economy.

Duangmanee Vongpradhip, an assistant governor for the Bank of Thailand, said the interest-rate cut would help complement the government's moves to boost fiscal spending to support growth.

"Inflation remained low as a result of the significant decline in oil and commodity prices due to weaker global economic conditions and domestic demand," the MPC said in a statement.

"The MPC thus viewed that the monetary policy could be eased further to support economic recovery, particularly as the economy continued to face numerous negative risks, both on the domestic and external fronts, and the impact of fiscal stimulus would take some time to materialise."

The global financial crisis caused exports to contract by 16% in November. Meanwhile, domestic consumption and private investment remained weak because of fragile sentiment. But political stability had helped lead to the development of new stimulus measures that would benefit the economy.

The MPC's decision will see the central bank inject liquidity into the system through its primary dealers to reduce the interest rate of one-day repurchase bilateral contracts that commercial banks trade. The move is the second aggressive interest-rate cut by the MPC in as many meetings, following a full percentage-point cut in early December.

Ms Duangmanee said the MPC assumed the government would disburse 80% of the 115-billion-baht supplementary budget in the current fiscal year and the remainder in the next fiscal year. As well, it expected the government to meet the target of 94% disbursement of the normal annual budget.

The MPC projected the disbursement of the supplementary budget would start in April, she said.

Ms Duangmanee admitted that the MPC's benchmark interest-rate reduction would not necessarily lead commercial banks to reduce their lending rates immediately because they have diversified sources of funds.

"We expect the monetary policy to take a while to transmit through commercial banks. Our injection is through the bond repurchase market, just one of their sources of funds. Their lending decisions also depend on others, which are not under our control," she said.

The fiscal policy should take a lead role in pulling the economy out of recession, Ms Duangmanee said.

"The monetary policy will play a supplementary role. We have reduced the interest rate to signal that the easing of the monetary policy has continued. At some point, the fiscal stimulus should have a stronger effect on the economy," she said.

The MPC will monitor how well the economy recovers, taking into account its potential and the efficiency of the fiscal policy.

Ms Duangmanee said both inflation as measured by the consumer price index and core inflation, which excluded energy and fresh food, could be in the negative territory this year. The decreasing price pressure was due mainly to a significant decline in oil prices due to the slowdown in the global economy.

The real one-year deposit interest rate stood at 3.02% above inflation in December. It has increased because of the declining inflation, she said.

Ariya Tiranaprakij, executive vice-president of the Thai Bond Market Association, said the five-year bond yield had increased to 2.38% from 2.18% and those of 10-year bonds to 3.13% from 2.56% since early January.

The yield decreased by 10-15 basis points to 2.25% from 2.4% for five-year and 2.97% from 3.13% for 10-year bonds as a reaction to the MPC's decision yesterday.

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Hyperinflation

Discussion 2 : 16/01/2009 at 02:15 PM2
What? No followups on this story? How about talking with the PR representatives from all the banks and asking them if they plan on lowering their retail lending rates in line with this reduction?

Unless and until we see this policy reflected at the retail level, this policy does nothing except give further profits to the wealthy bankers. If there is one thing we should have learned from the fiasco in the US, it is that bailing out the wealthy bankers does nothing to help the economy. Let's see some reporting on the pressure the government should be putting on these retail banks to pass these savings along to their customers.

That is the real story. Lowering the RP rate will have minimal effect as long as it only goes to line the pockets of the already wealthy and depress interest paid to the struggling middle class who save.
southern mice

Discussion 1 : 16/01/2009 at 07:30 AM1
Why should the reduction of interest on loans be allowed to take time to reduce while interest on 'deposit' be allowed to be adjusted almost immediately? This clearly show that the B.O.T. is helping the Commercial Banks to 'bully' the consumers. VERY BAD example of Administration.

Hyperinflation

Discussion 2 : 16/01/2009 at 02:15 PM2

What? No followups on this story? How about talking with the PR representatives from all the banks and asking them if they plan on lowering their retail lending rates in line with this reduction?

Unless and until we see this policy reflected at the retail level, this policy does nothing except give further profits to the wealthy bankers. If there is one thing we should have learned from the fiasco in the US, it is that bailing out the wealthy bankers does nothing to help the economy. Let's see some reporting on the pressure the government should be putting on these retail banks to pass these savings along to their customers.

That is the real story. Lowering the RP rate will have minimal effect as long as it only goes to line the pockets of the already wealthy and depress interest paid to the struggling middle class who save.

southern mice

Discussion 1 : 16/01/2009 at 07:30 AM1

Why should the reduction of interest on loans be allowed to take time to reduce while interest on 'deposit' be allowed to be adjusted almost immediately? This clearly show that the B.O.T. is helping the Commercial Banks to 'bully' the consumers. VERY BAD example of Administration.

Bangkok Post : Key interest rate sliced to 2%

Key interest rate sliced to 2%

BoT: Inflation may be negative this year

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