Policy Rate May Be Cut To Boost Economy: Bank Of Thailand

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Policy rate may be cut to boost economy: BOT

Seetalavajit Sabayjai

The Nation

Amid calls for a cut in the policy rate to shore up the economy after the flood crisis, the Bank of Thailand governor yesterday signalled that the benchmark rate, which is close to normalisation, could be lowered at the Monetary Policy Committee meeting on November 30.

"Inflation expectations now are stable" and the central bank will work to maintain business and consumer confidence, Prasarn Trairatvorakul said.

Headline inflation is forecast at 3.8 per cent this year. The estimate for next year's headline inflation is 3.5 per cent, and the policy rate currently is also 3.5 per cent. "That leaves some room for accommodating" policy, Prasarn said.

The BOT's MPC held the policy rate at 3.5 per cent in October, after a series of rate rises since July last year.

The MPC has been closely monitoring inflation expectations and confidence of consumers and businesses. Domestic consumption and production, especially of automobiles, are expected to stage a comeback next quarter, Prasarn said.

"In the first quarter of 2012, consumption is likely to make a recovery after many projects were postponed because of the floods in the fourth quarter of 2011," he said.

The flood crisis "is likely to end this month or next and restrained [expenditures] like car purchases, house repairs and other consumption are expected to come back in January and February", aside from the fiscal boost, he said.

After the floods recede, many business activities such as machinery replacement, purchases of parts, and plant overhauls are also expected. Some of those business activities could be partly financed by insurance payments.

Of the Bt700 billion in expected total insurance compensation, actual flood damages account for about Bt200 billion, according to the Flood Relief Operations Centre. "This amount is not high in US dollar terms," Prasarn said.

He added that fluctuations in the financial markets and the baht had resulted from major economies' unclear solutions to their debt problems.

"Investors are reluctant to hold risky assets, and that is good for not building up pressure to strengthen the baht," he said.

The Western economic problems will not affect Thailand much because of its high foreign reserves and sound economic fundamentals, he said.

Prasarn also expressed no concern over the depreciating baht, which now is about 31 per US dollar. This year, the central bank could see foreign exchange gains from the account, backing note printing, due to the baht's slight depreciation, from the beginning of this year to now, and that would allow it to pay back the Financial Institutions Development Fund's debts.

Recently business communities have called for a policy-rate cut to boost an economy affected by severe flooding. Finance Minister Thirachai Phuvanatnaranubala earlier also called for the central bank to take into account the weak world economy and other factors and not focus solely on inflationary pressure.

-- The Nation 2011-11-19

[drdoom6996]

To smart, never happen.

[BKK22]

The flood crisis "is likely to end this month or next and restrained [expenditures] like car purchases, house repairs and other consumption are expected to come back in January and February

I quote this sentece and highly doubt if it will really happen.

[moe666]

Those people affected will be sorting this out for months. A friend whoses house is flooded told me last night they donot expect the water to recede for another month. He lives off Rangset Rd. Water in his moo Baan still wast deep.