Finance Minister Kittiratt Na-Ranong said Thursday the central bank's benchmark rate is too high, while resigning himself to lacking the power to influence it.
Deputy Prime Minister and Finance Minister Kittiratt Na-Ranong said during an interview on Thursday that the Bank of Thailand's benchmark rate is too high, while resigning himself to lacking the power to influence it. (Bloomberg photo)
"I still believe that the policy rate is too high," Mr Kittiratt said in an interview on Thursday. "But I am not saying that because I want them to cut it," he said. "My opinion is irrelevant because my colleagues in the Monetary Policy Committee are very independent."
Mr Kittiratt said his focus is on proceeding with the 2-trillion-baht transport-infrastructure programme, rather than on external dynamics such as the Bank of Thailand's policies or international developments. Mr Kittiratt said that for now the impact of the US government shutdown isn't a concern, and that the prospect of reduced Federal Reserve stimulus is welcome, because exiting quantitative easing would mean the American economy is strengthening.
While Mr Kittiratt said he didn't mind too much about short-term gross domestic product figures, it would be nice for growth to come in at 4% this year. The baht, which was excessively strong earlier this year, is now at an appropriate level, according to the minister. "I don't hope to see a weaker baht -- I want a stable baht."
The baht traded at 31.24 per dollar as of 3.10pm in Bangkok, up about 3% in the past month after the Fed decided to postpone any tapering in its monthly asset purchases -- diminishing the risk of an outflow of capital from emerging markets. The SET Index advanced 1.4%, bringing its gain over the past month to 8.6%.
The Finance Ministry last week cut its 2013 growth forecast to 3.7% from 4.5%. It said expansion may still reach 4% if the government pushes through 86 billion baht in spending by the end of the year.
"Monetary policy should do the job because fiscal policy has gone almost on a tightening path with a lower budget deficit and a lack of infrastructure spending," said Santitarn Sathirathai, a Singapore-based economist at Credit Suisse Group AG. "We still believe there is a chance the central bank may cut the rate this year. Lower rates will help stimulate local demand as we can't see any economic catalyst now."
The central bank kept its benchmark interest rate unchanged at 2.5% for a second straight meeting on Aug 21 after cutting it by a quarter of a percentage point in May to bolster growth. The next policy decision is due Oct 16.
"Emerging markets aren't likely to see a crisis as a result of the Fed ending its QE programme," said Mr Kittiratt, who is also a deputy prime minister. Exchange rates will work as the most important adjustment factor for some countries, helping manage their current-account balances, he said. India and Indonesia were among the nations that saw the biggest slide in their currencies after concern mounted in May that the United States would reduce injections of liquidity into the global system.
"It has to end some day," Mr Kittiratt said of the Fed's QE programme. "The sooner the better," he said, because of the challenges in the rest of the world coping with resultant capital flows. "It worked," he said of the Fed's initiative, citing increases in American employment.
The shutdown of the American federal government that began this week is unlikely to hurt the global economy for now, according to Mr Kittiratt. He said that the shutdown in 1995, when the US accounted for a larger share of world output, showed that a two-to-three week impasse shouldn't be a serious problem. "If this situation is prolonged, no one could say we would not suffer -- I think the whole world would suffer.''
US President Barack Obama and Republican and Democratic lawmakers have been unable to agree on a budget for the US fiscal year that began Oct 1, leading to the first partial government shutdown in 17 years.
Mr Kittiratt said he was concentrating on what he can control, preparing to present a seven-year infrastructure programme to the Senate next week. The rail and road projects envisioned will boost GDP by a total of 3% by the end of 2020, reducing imports of fossil fuels and increasing the attraction of investing in areas of the country besides Bangkok, he said.
While critics including the opposition Democrat Party have expressed concern about the additional debt Thailand would take on from the initiative, they fail to note that past infrastructure spending has proved key to the country's development, he said. He cited a port on the eastern seaboard conceived during the administration of Gen Prem Tinsulanonda, and ex-prime minister Thaksin Shinawatra's decision to build Suvarnabhumi airport.
Mr Kittiratt said the administration is girding for legal challenges to the legislation after its passage, and will focus on getting the projects ready in the meantime.