The Bank of Thailand should not cut the policy interest rate significantly, as it could lead to bubbles in the market, economists have warned.
Bunluasak Pussarungsri, head of research for CIMB Thai Bank's risk management group, said lowering interest rates to prevent baht appreciation needs to go hand in hand with measures to control loans, or else household debts will rise and eventually cause bubbles.
If the central bank is not careful and lowers interest rates by one percentage point, which would be too much, problems will arise, he told a seminar hosted by the National Economic and Social Advisory Council.
"It's not good if you try solving short-term problems but end up creating problems in the long term. We have to be cautious," Mr Bunluasak said.
Bubbles have begun in terms of rising household debt and speculation in condominiums at tourist destinations such as Hua Hin and Pattaya.
Meanwhile, the Stock Exchange of Thailand's main index is rising very quickly and should reach 1,700 points this year.
"We predict the central bank will cut the rate by about half a percentage point as well as impose capital control measures but not to a large extent," Mr Bunluasak said.
He said the baht's current depreciation is temporary, and the currency should continue to strengthen for at least two more years due to quantitative easing in the US and Japan.
Exports are projected to grow by 5% this year based on an exchange rate of 29.50 baht to the dollar, Mr Bunluasak said.
Kobsak Pootrakool, an executive vice-president of Bangkok Bank, said Asian currencies, especially those in Southeast Asia, will continue to strengthen in the long term spurred by economic growth.
"Businesses should not ask for things that are unlikely to occur such as capital inflow measures and the baht falling to 31-32 baht," he said.
Instead, the central bank should keep the baht in line with regional peers and launch measures to help businesses in the long term.
Mr Kobsak said measures could include making it easier for firms to relocate to neighbouring countries and offering funds to help exporters upgrade machinery.
Kasikornbank (KBank) kept its consumer loan growth target for this year despite expectations of higher loan demand, as banks' rates are likely to be cut if the central bank decides to slash the policy rate, president Predee Daochai said without elaborating on the target.
Mortgages make up a large part of KBank's consumer loans. Its housing loan growth is pegged at 8-10% this year.
About the author
Writer: Nanchanok Wongsamuth & Somruedi Banchonguang