Interest rate already ‘very low’, says Bank of Thailand official

Vendors selling trinkets in a tourist district of Khao San Road in Bangkok. An official of Thailand’s central bank said June 10, 2014 further easing of the already low benchmark interest rate may do little to help the economy. — Reuters pic
Vendors selling trinkets in a tourist district of Khao San Road in Bangkok. An official of Thailand’s central bank said June 10, 2014 further easing of the already low benchmark interest rate may do little to help the economy. — Reuters pic

BANGKOK, June 10 — The Bank of Thailand’s benchmark interest rate is “very low” and any further easing before the political situation is stable may do little to help the economy, an independent member of the central bank’s monetary policy committee (MPC) said.

The army seized power on May 22 after months of political unrest that hurt confidence, scared away tourists and halted much public spending. The junta is now taking steps to revive the economy, which shrank 2.1 per cent in the first quarter.

The main factor for interest rates at the moment is the political situation and the prospect of a return to stability, said Siri Ganjarerndee, one of four non-central-bankers on the seven-member panel.

“Is the situation normal yet? That’s important because monetary policy will be most effective when things are in place. If not, doing anything will be pointless,” he told Reuters in a telephone interview late yesterday.

“But if you ask whether our policy rate is obstructing investment? Not at all. It is very low,” he said.

The benchmark rate has been at 2 per cent since March 12.

Siri’s comments may reinforce expectations the rate will be left unchanged at the next monetary policy meeting on June 18. Some economists expect another cut because of the depressed economy.

At its last meeting on April 23, the rate committee voted 6-1 to leave the rate unchanged after cuts in March and last November, when the turmoil started, to shore up confidence. .

Policy dilemma

The military government is faced with slowing economic growth and rising inflation at a time of high household debt and weak confidence. The country also remains deeply divided politically.

The headline inflation rate accelerated to a 14-month high of 2.62 per cent in May, while domestic demand remained subdued. Consumer confidence picked up in May because of hopes that the military would restore order, but it had been falling for over a year until then and is still fragile.

The new government is trying to restore growth, and monetary policy should complement that, but policymakers needed to be sure any rate cut would have some effect, Siri said.

“But the private sector says ‘you cut rates but I don’t have to invest’. Consumers say ‘you cut rates but I won’t spend, I’m scared’. It can’t be like that. It’s useless,” he said.

Siri said another factor to consider is how foreign investors look at Thailand.

“Do they still want to invest in Thailand in the longer term or they are just waiting to pull out? This is unclear and difficult to assess.”

The junta has moved quickly to tackle economic problems, speeding up rice payments owed to farmers by the state, ensuring the next fiscal budget will be on time and planning emergency economic measures to get the economy going.

In response to a question on whether the junta could force the central bank to lower rates to support the economy, Siri said: “They probably can’t do that. We make a decision on real economic data, what should be done or should not.”

Three days before the military took power, the state planning agency cut its economic growth forecast for this year to 1.5-2.5 per cent from 3.0-4.0 per cent.

The central bank has forecast growth of 2.7 per cent but will review that at the next rate meeting and is due to release a revised figure on June 27.

The economy grew 2.9 per cent in 2013. — Reuters

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