Thailand's Inflation Will Be Leased Within Target: BoT Chief

[webfact]

Inflation will be leased within target: BoT chief

By ACHARA DEBOONME

THE NATION

Bank of Thailand Governor Prasarn Trairatvorakul is confident that Thailand's inflation will not surge beyond the target, despite growing uncertainties worldwide, particularly the Middle East crisis which could threaten price stability.

"We at the Bank of Thailand are confident that core inflation will be within the target of 0.5-3 per cent," he said at a dinner talk to Harvard Alumni on Tuesday night. He assured all that the inflation would be below the top end of the range and higher inflation would not "hinder the growth momentum".

He admitted that managing the inflation expectation of the public was the immediate challenge. While the economic recovery in 2010 convinced central banks that there should be no more accommodative policy, the Middle East crisis is pushing up oil prices, probably above the forecast level.

While highlighting the need for further rate normalisation, Prasarn admitted that there was no fixed figure. He noted that a normal rate, when the economy returns to a normal state, is the rate that does not exert growth bias but strengthens the economic growth. He noted that the normal rate depends on productivity of the labour market.

It is widely expected that the Monetary Policy Committee will raise the policy rate at its March 9 meeting. Many securities houses expect the policy rate to end this year at 3 per cent, from 2.25 per cent at present. Bangkok Bank is the only institution that expects the rate to go beyond 3 per cent in the first half of this year.

Prasarn said the financial stability issue was more complex than price stability, as any country, even with price stability, could experience financial instability stemming from problems related to the stock market, property market and capital flows. This increases the significance of macro-prudential policies, so that the authorities have proper analysis to help stabilise the markets "through a mixture of tools, not just interest rates".

On capital flows, the governor admitted that it is hard to predict the direction of the US dollar as it could appreciate given the broad demand for the currency, or depreciate due to debt problems, structural problems and the pace of economic recovery.

He, however, highlighted the need for a "systematic way" to boost Thailand's overseas investment, following the huge inflows into the Kingdom. Much of the investment went to the bond and stock markets last year. As the Stock Exchange of Thailand gained 42 per cent last year, foreign claims on Thai assets increased accordingly. Yet, Thailand's investment overseas was low. Though the Securities and Exchange Commission is allowed to approve overseas investment of up to US$50 billion (Bt1.5 billion), at the peak only $17 billion was invested.

"We should do more, in a systematic way, for the longer-term growth of the country," he said, adding that more alternatives should be examined.

On domestic issues like deposit protection, Prasarn expects no significant risks to financial institutions from the Deposit Protection Act. On August 11, the protection will be extended only for deposits of up to Bt50 million per institution. On the same date, next year, the protected amount will go down to Bt1 million per institution.

"There are many alternative deposits like mutual funds and B/E [bills of exchange]. Though not protected, mutual funds show high growth. This means people are willing to put savings into alternative savings instruments even without a protection scheme."

He expects more offers to depositors and expressed confidence that all banks would do well despite the law.

-- The Nation 2011-02-24

[Buchholz]

Rather than lease inflation, wouldn't it be less expensive in the long run to buy inflation?

[CMX]

Rather than lease inflation, wouldn't it be less expensive in the long run to buy inflation?

Actually, we should not lease inflation or buy it either.

We should sell it, or give it away. Leasing inflation could be expensive, any way you think of it.

In fact, I'm not sure who would buy or even accept the gift?

[exbelg]

inflation over 3% = your saving on your bank are not worth the paper they printed on

[Thai at Heart]

Rather than lease inflation, wouldn't it be less expensive in the long run to buy inflation?

Actually, we should not lease inflation or buy it either.

We should sell it, or give it away. Leasing inflation could be expensive, any way you think of it.

In fact, I'm not sure who would buy or even accept the gift?

I think this headline should come with a disclaimer.

"Standard Terms and Conditions Apply. Prior performance is no guarantee of future performance"

I really can believe that a few trading desks around the world received this headline on their newsfeed and thought the BOT had come up with a new financial instrument.