BoT to consider interest rate cut
The central bank would consider reducing its policy interest rate if first-quarter economic data supports such a move, Bank of Thailand governor Prasarn Trairatvorakul said Saturday.
- Published: 12/05/2013 at 12:00 AM
- Newspaper section: topstories
The BoT is under growing pressure from the government to cut its base rate from 2.75 per cent to help rein in the baht, which has gained 4 per cent against the US dollar since the start of the year.
Finance Minister Kittirat Na-Ranong (left) has been putting heavy pressure on Bank of Thailand governor Prasarn Trairatvorakul to cut interest rates, and Mr Prasarn said on Saturday the central bank "will consider" a policy interest rate cut on May 29. (File photos)
The National Economic and Social Development Board is scheduled to release its figures for the January-March period on May 20.
These will give the BoT's Monetary Policy Committee (MPC) a clearer picture of the state of the domestic economy and global trends, Mr Prasarn said.
The central bank is scheduled to hold its next interest rate meeting on May 29.
Managing the rise of the baht requires a mix of control policies, covering capital flows, interest rates and foreign exchange, Mr Prasarn said.
The BoT has already discussed the management of capital flows into the domestic bond market with the Finance Ministry and related agencies, he said.
The role of the policy interest rate is to maintain economic stability, but if there are no signs of overheating in the first quarter, it could be used to support foreign exchange management, he said.
"The best approach is to use a mix of the three control policies, implementing them at the correct time," he said.
"The MPC might use interest rates to control foreign exchange rates if the economy justifies it, meaning that inflation is benign and the economy is not overheating," he said.
The Finance Ministry will hold a special meeting with the central bank, the MPC and the private sector Monday at Government House to exchange information on the issue, he said.
The current policy interest rate is supportive for local business and considered low in regional terms, he said.
The appreciation of the baht in recent weeks has been driven by the state of leading global economies, and is just temporary, Mr Prasarn said.
Europe is mired in stagnation, the US recovery is fragile and Japan is grappling with deflation, but those situations will not continue for ever, he said.
Thailand's better economic fundamentals, compared to the US, Europe and Japan, sparked the large foreign capital inflows, he said.
As a result, the baht appreciated too rapidly, but the gains will not lead to an economic crisis. The private sector has already adjusted to the stronger currency, he said.
In the meantime, one of the advantages of the stronger baht is that imported fuel is much cheaper, he said.
More importantly, the appreciation of the baht against foreign currencies is clear evidence of Thailand's growing prosperity.
When the baht was trading at 50 to the US dollar 15 years ago, people thought Thailand was poor compared to other countries in the world. Now it's the other way round, he said.
About the author
- Writer: Parista Yuthamanop
- Position: Writer