Prasarn to address ministry concerns with BOT panels
Bank of Thailand Governor Prasarn Trairatvorakul is seeking consultation with relevant committees on four concerns raised recently by the Finance Ministry before forwarding the central bank's findings to the ministry next month.
Finance Minister Thirachai Phuvanatnaranubala asked the governor to present him within a month the studies on four major issues: the establishment of a sovereign wealth fund, inflation targeting, the massive issuance of bills of exchange among commercial banks, and ways to deal with the debt carried by the Financial Institutions Development Fund, incurred during the 1997 financial crisis.
"The central bank's administration department has already studied some of them," Prasarn said.
The issue of a sovereign wealth fund will be put before the Bank of Thailand's board. He will also seek consultation with the Monetary Policy Committee (MPC) on the inflation target in its next meeting on October 19. The Finance Ministry prefers to lower the target to boost the economy. Meanwhile, the bills-of-exchange issue will be discussed at a meeting with the Financial Institutions Policy Committee.
These proposals by the finance minister do not constitute intervention against the central bank, as all of them are of concern to the country, which requires cooperation of all relevant agencies to yield optimal benefits, Prasarn said.
The current inflation-targeting mechanism provides flexibility, and changing the target could affect investor confidence, he said.
"Before forwarding the results of these studies to the Finance Ministry, we have to seek consultation with the MPC. Certainly, if the upper range of the inflation target is widened, the money markets could expect that we will allow higher inflation. In the bond market, investors may not buy bonds with lower coupon rates than inflation, which will then push up interest rates in the money markets," he said.
As for the proposed sovereign wealth fund, most of the country's foreign reserves come from capital inflow, which has been invested in bonds and equities, he said. The central bank's duty is to oversee the stability of international transactions, including maintaining ample funds for investors when they need to withdraw money out of the country.
