Monetary policy must shift away from price stability to focus more on job creation, Bank of Thailand chairman Virabongsa Ramangkura says.
Dr Virabongsa, who became chairman earlier this year, said the inflation-targeting system used by the central bank to set policy "no longer works".
Trade liberalisation and globalisation meant that pricing was no longer set domestically, but rather hinged on global supply and demand.
"[Global] demand now however is less than supply. Monetary policy focused strictly on inflation is unreasonable," Dr Virabongsa said at a seminar last night.
Since 2000, the central bank has set its one-day policy rate based on an inflation-targeting model that aims to keep core inflation within a range of 0.5% to 3%. Core inflation, which excludes food and energy prices, was 1.87% in July, with the policy rate set at 3%.
Finance Minister Kittiratt Na-Ranong was more blunt in calling for changes in monetary policy, saying the central bank should allow the baht to weaken to support Thai exports.
"I am not concerned about inflation. If the baht is weak, some have expressed concern about importing inflation, but it's something that just needs to be managed," he said. "If inflation goes together with growth, it's not unusual."
Mr Kittiratt added that besides a weaker currency, the policy interest rate had room to fall further, possibly to 2.5%.
The baht, quoted at an average selling rate of 31.6154 to the US dollar, has barely changed from the beginning of the year but is almost 5% weaker compared with January 2011.
About the author
- Writer: Wichit Chantanusornsiri
Position: Business Reporter