Bank of Thailand governor Prasarn Trairatvorakul has joined the mounting voices opposing the policy to weaken the value of the baht signalled by Finance Minister Kittiratt Na-Ranong.
Bank of Thailand governor Prasarn Trairatvorakul (Photo by Apichit Jinakul)
Mr Kittiratt, also deputy prime minister for economic affairs, said on Wednesday that he wants the Thai currency to depreciate to a range of 32 to 34 per US dollar to help exporters and spur the economy, and that the BoT should lower its key policy rate, now at three per cent.
Mr Prasarn said he disagreed with the idea of devaluing the baht. It was the central bank's policy to use a managed float to control the foreign exchange rate - a method that allows the baht's value to be flexible in line with the money market mechanism.
He believed this flexibility was not an obstacle to trade and investment.
Mr Kittaratt wanted to weaken the baht by allowing a current account deficit, the BoT chief said, but the current account was not a tool used in managing monetary policy. The current account deficit, or surplus, was a result of international trade.
It was good that Thailand now has a current account surplus as it reflects the wealthiness of the country, and the government should take advantage of it by encouraging local businesses to make more investments in other countries, he added.
The central bank's current key policy rate of three per cent was a suitable level for supporting economic recovery, Mr Prasarn said.
There had been indications of economic recovery over the past two months. Domestic consumption has been increasing, the number of foreign tourists was on the rise and more manufacturers had resumed production in the wake of the great flood. It was expected that flood affected factories will all be able to resume full operation in the third quarter of the year, said Mr Prasarn.
He admitted that the high global price of oil, the policy to raise the daily minimum wage and government mega-investment would put upward pressure on inflation.
The central bank would take these factors into account when deciding whether or not to alter the policy rate at the next meeting of its monetary policy committee on May 2, the governor said.
Thammasat University economist Praipol Khumsap (File Photo)
Thammasat University economist Praipol Khumsap said Mr Kittiratt's call to weaken the baht would act against money market instruments.
"Mr Kittirat should not set the baht at a particular value because it might trigger another economic crisis like the one in 1997 and I want to know the real reason why he wants a weaker baht," Mr Praipol said.
He said the problems of Thai exporters do not centre only on the baht's value. G3 economies are not performing well and economic growth in China has also slowed.
"Even if the baht is depreciated, I'm afraid it won't increase the export volume," the respected economics professor said.
He said more problems would arise if the baht is weakened, as stated by central bank governor Prasarn, who warned that devaluation would cause a hike in fuel prices with flow-on effects.
"I believe the central bank has rules about when to intervene in the currency market to keep it from fluctuating, and the baht's value is already appropriate," said Mr Praipol.
Former finance minister Korn Chatikavanij said in a message posted on Facebook that Mr Kittiratt should listen to other people as they also have good intentions for the country.
Former finance minister Korn Chatikavanij (Photo by Patipat Janthong)
"I might be from a rival political party but I'm not the enemy," the Democrat Party deputy leader said, responding to Mr Kittiratt's comment to reporters on Wednesday that Mr Korn's remarks have no relevance since he is just a former finance minister and an opposition MP.
Mr Korn asked Mr Kittiratt whether he could ignore comments by two other former finance ministers - Somkid Jatusripitak and Pridiyathorn Devakula. Mr Somkid said the government should focus on investments that depend on a strong baht, while M.R. Pridiyathorn warned of the dangers of the minister openly discussing the baht's value.
"When you [Mr Kittiratt] were working on the rice mortgage scheme, you didn't listen to anyone else and you claimed that the price of rice in the world market would increase in line with the price set by the Thai government. Today, Thailand can't export rice. Its exports are 60 per cent below last year," Mr Korn said.
He said the state Oil Fund has a debt of more than 20 billion baht, yet energy and product prices continue rising every day.
"When Mr Kittiratt was the commerce minister, he told us that product prices went up in line with market forces, but when it comes to the baht he wants to intervene because it could hurt exporters.
"If the baht is devalued, the people will have to buy goods at higher prices and there'll also be speculation on the currency," the opposition MP said.