Nida: Policy rate cut alone won’t help

A reduction in the policy rate will not stabilise the baht if commercial banks do not also cut loan rates, Montree Sokatiyanulak of the National Institute of Development Administration (Nida) said on Tuesday.

The central bank’s monetary policy committee will meet on Wednesday to discuss whether the repurchase rate (RP) should be reduced, as called for by the private sector.

It is widely expected the panel will cut the policy rate to stimulate the economy and curb the baht’s strength, thereby helping exporters struggling to overcome the affect of the over-valued baht .

However, Mr Montree said there is concern that even if the RP rate were cut it would fail to spur the economy and export sector, if commercial banks do not also reduce loan rates in line with the policy rate reduction.

In the past, after the monetary policy panel cut the key rate commercial banks would reduce deposit rates in line with the policy rate cut, but lending rates were only slightly reduced. Therefore, the cost to the private sector was not substantially lowered, as it should be, he said.

A reduction in policy rate, either by 0.25 or 0.50 percentage points, would fail to mobilise the economy if commercial banks providing loans for the private sector only slightly cut lending rates, the academic said.

It is the duty of the Bank of Thailand to oversee the spread between deposit and lending rates to ensure it stays at a suitable level to encourage private investment and boost economic growth, he said.

Finance Minister Kittiratt Na-Ranong said on Tuesday that the meeting of the monetary policy committee on Wednesday should consider setting the policy rate at a suitable level.

Even though the baht had weakened, the central bank should discuss with exporters, the country’s foreign exchange earners, whether it should be weaker than the current level, he said.

“The central bank should also help exporters by stabilising the baht's value and curbing its strength. If it cuts the policy rate by only 0.25 percentage points, or leaves it unchanged, it would be ignoring the calls by the private sector,” said Mr Kittiratt.

Bank of Thailand governor Prasarn Trairatvorakul said he had no discomfort about the monetary policy panel meeting on Wednesday, because the members of the committee were all experts in their field.

Whatever decision is made, be it to cut the policy rate or not, there will also be an explanation to justify it, he said.

Related search: monetary policy, policy rate, Montree Sokatiyanulak, National Institute of Development Administration, Nida, Bank of Thailand

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