Lower Rate Won't Stem Capital Flow: Bank Of Thailand

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Lower rate won't stem capital flow: BOT
Saran Kitvasin
Weerasak Pongaksorn
The Nation

BANGKOK: -- The Bank of Thailand is expected to convince its Monetary Policy Committee (MPC) in their meeting on monthly economic data tomorrow that the reduction of the policy rate would not help much in stemming the massive capital inflow. The key factor drawing the inflow is foreign investors'confidence in the Thai economy, according to a central bank source.

The source said that central bank officials had prepared information to show to the seven-member MPC that the country's interest spread is not a key factor in drawing capital into the country, when compared to those of regional peers.

The source added that the three MPC committee members, who represent the central bank, may explain to the other four members that the rate cut could affect the BOT's inflation targeting policy. Therefore, it would be better to seek other measures to curb the inflow.

The bank will also inform the MPC committee the result of last Friday's meeting between the Finance Ministry, the central bank, and the National Economic and Social Development Board, to discuss the strengthening of the baht and its impact on the economy.

After last Friday's meeting, Deputy Prime Minister Kittiratt Na-Ranong said the government had yet to come up with measures to curb the baht's rising trend, but would closely monitor the situation. Although the government believes reducing the policy interest rate may cause the baht to depreciate, it agreed that further research was needed into possible adverse effects of such a cut.

According to Kittiratt, the government would allow the market mechanism to decide the value of the baht, saying the strengthening of the currency was a result of business confidence in the Thai economy, which is expected to grow 5 per cent this year.

Economist Veerathai Santiprabhob said a cut in the policy rate was not the most effective tool to stem the inflow as the policy rate was a one-day repurchase rate, while what the country was experiencing was inflow into bonds, especially the government's long-term bond. Even if the policy rate was cut, it would not mean the interest rate of long-term bonds would decline accordingly. He said Thailand's policy rate was lower than that in countries like China, India, and Indonesia - but, unlike Thailand, they were not experiencing massive capital inflows.

The BOT has come under pressure from the government to launch action to weaken the baht, as the peak gain of 7 per cent severely hurts the export industry. The country’s current policy rate is 2.75 per cent.

Bhanupong Nidhiprabha, dean at the Faculty of Economics at Thammasat University, said recently that the MPC should trim the policy rate by at least 0.25 per cent to stem the inflow - and the MPC should call an urgent meeting on the baht ahead of its regular meeting on May 29.


-- The Nation 2013-04-29

[cigar7]

They should replace the Bank of Thailand governor. They needed to drop the interest rate months ago.

[yoshiwara]

The BOT doesn't appear to employ the brightest bulbs in the ceiling.

[Locationthailand]

I'm all for letting it ride, it then becomes a market factor not a political, bank or govt football. If the economy slows in GDP it will bring Thailand into line with world status rather than what is fed to us via the controlled media.

[Robert2006]

They should replace the Bank of Thailand governor. They needed to drop the interest rate months ago.

Keep in mind it’s a double edged sword if Thailand decides to reduce interest rates that will cause domestic inflation and we will all be paying more for the goods and services we use here. If they do nothing our exchange rates will keep going down and our costs will rise. Any way you look at it, it doesn’t look good; be it a stronger or a weaker Baht we will most likely be confronted with notable inflation here in Thailand.

This type of economic condition has never happened before; every major economic power is devaluing their currency at the same time. It’s not an easy situation to correct and now Japan has announced plans to devaluing their currency, injecting an astonishing

1.5 Trillion Yen into their economy, this is very problematic for Thailand.

It will probably only be a question of time before Thailand is forced to devalue the Baht.

[yoshiwara]

They should replace the Bank of Thailand governor. They needed to drop the interest rate months ago.

Keep in mind it’s a double edged sword if Thailand decides to reduce interest rates that will cause domestic inflation and we will all be paying more for the goods and services we use here. If they do nothing our exchange rates will keep going down and our costs will rise. Any way you look at it, it doesn’t look good; be it a stronger or a weaker Baht we will most likely be confronted with notable inflation here in Thailand.

This type of economic condition has never happened before; every major economic power is devaluing their currency at the same time. It’s not an easy situation to correct and now Japan has announced plans to devaluing their currency, injecting an astonishing

1.5 Trillion Yen into their economy, this is very problematic for Thailand.

It will probably only be a question of time before Thailand is forced to devalue the Baht.

... and if interest rates drop then a risk of money piling into Bangkok property and we're off to the races again.

[belg]

are they complaining that there is "too much" money comming into thailand ??? and still they need big scams to get 2.2 trillion baht loan over 30 years payback time ?

it is like hell to try to get your money out of the country , as a farang that is