The Bank of Thailand stands ready to ease its monetary policy if the country's economic growth loses momentum but must first consider in detail what is causing the weaker-than-expected growth before making any decision, says governor Prasarn Trairatvorakul.
He said the 3.9% domestic consumption growth rate announced by the National Economic and Social Development Board (NESDB) is far lower than the central bank's forecast of 6.1%.
But Mr Prasarn said the low domestic investment figure is understandable, as export-oriented manufacturers might decelerate their investment.
"If the economy slows down, we need to consider possible consequences. But the slowdown is not beyond central bank expectations. When government measures alleviating the flood impact fade out, the economy could slow somewhat," he said.
"If the economy grows below the full potential, the monetary policy must fulfil it. Interest rates can be eased if the economy loses momentum, but it need cautious consideration."
Mathee Supapongse, the central bank's senior director for macroeconomic and monetary policy, said the NESDB's 5.3% year-on-year growth for the first quarter was far lower than the central bank's 7.1% forecast.
After the weak economic data were announced, Arkhom Termpittayapaisith, secretary-general of the NESDB, said he is worried about growth in the following quarters and that the rate-setting committee could address the slowdown and help curb inflows that have boosted the baht.
The lower-than-expected first-quarter economic growth has also prompted most economists to bet on a policy rate cut of up to 50 basis points at next Wednesday's much-awaited meeting.
The central bank's Monetary Policy Committee (MPC) has been under heavy pressure from the government and exporters following the baht's rise to a 16-year high of 28.55 to the US dollar in mid-April.
Deputy Prime Minister and Finance Minister Kittiratt Na-Ranong recently said cutting the policy rate is his preferred measure to tame the baht's advance, adding that the MPC should cut the rate by 75 basis points.
Although the baht has weakened to above 29 to the dollar, it has remained the strongest currency in Asia so far this year.
Mr Prasarn insisted the lower-than-expected first-quarter GDP growth did not result from the stronger baht eroding the country's export growth, as the NESDB's quarterly export value is similar to the central bank's projection and this reflects that the baht's strength has not blunted export performance.
Although the baht has kept weakening against the greenback recently, measures to curb the baht's gains are readily available, and some of them need Finance Ministry approval for implementation, he said, adding four measures proposed do not need to be implemented at the same time.
The potential measures widely reported are: banning foreigners from holding central bank bonds, setting a minimum period of 3-6 months for foreigners to hold government and state-enterprise bonds, imposing fees on capital gains from bond investment by foreign investors and requiring foreign exchange hedging to discourage foreign investors from taking advantage of the baht's rise.
Meanwhile, Parisun Chantanahom, senior director of the central bank's international department, said that signs of a global economic recovery next year have been more apparent, and the US is expected to lead the rebound.
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- Writer: Post Reporters