Deputy Prime Minister and Finance Minister Kittiratt Na-Ranong lashed out at the Bank of Thailand's concern that an interest rate cut will fan inflation, calling it old-fashioned thinking, while former finance minister Korn Chatikavanij warned that such a rate cut would overheat the economy.
Money supply is a factor leading to an inflation spike, rather than the interest rate, Mr Kittiratt said during a debate with Mr Korn.
A higher interest rate domestically than overseas is luring capital inflows to arbitrage spread, creating 10 billion baht a month in losses for the central bank to absorb the excessive liquidity, he said.
Mr Kittiratt repeatedly said he tried in vain to ask the central bank to cut the policy rate when the baht stood at 31 to the dollar. A rate cut now would need to be up to one percentage point to have any effect, he said.
But Mr Korn brushed aside the idea, saying a rate cut is needed when a country wants to boost growth.
"It is unnecessary to cut rates to stimulate the economy. The government's planned investment in infrastructure projects will boost the economy," he said.
Mr Korn argued that the central bank's loss of 80 billion baht from absorbing surplus liquidity amounts to 0.7% of the country's gross domestic product - less than the forgone revenue from the current administration's first-time car buyer scheme.
Financial stability is the concern now that several Asian central banks have stopped their monetary easing and their governments have shifted to fiscal policy to stimulate the economy, he said.