BOT head opposes 'weak-baht, low-interest'concept
Bank of Thailand Governor Prasarn Trairatvorakul has said he does not agree with Finance Minister Kittiratt Na-Ranong's concept of a weaker baht and lower interest rates.
Meanwhile, Kittiratt today is expected to propose that the Cabinet set up a development fund to support state-run banks.
On the currency issue, Prasarn said too much intervention by the central bank in the exchange rate would backfire. If the BOT pushed the baht, say, from Bt30 to Bt33 per US dollar, it would invite higher dollar flows as investors would believe the Thai currency was artificially weak. They would gain when the baht moved back to its market value.
Higher dollar flows would increase pressure on the baht. Then the BOT would have to step in to buy dollars, resulting in a high cost from the intervention to keep the baht weak, he said.
Thailand had learned a hard lesson in 1997 when it tried to manipulate the exchange rate, resulting in the financial crisis, he noted.
Kittiratt also wants lower interest rates to boost economic growth. But Prasarn said the current policy rate of 3 per cent was the lowest in the region. When compared with the inflation rate of 3.3 per cent, the policy rate is still in negative territory.
Moreover, the economy has recovered from last year’s flood disaster, the BOT governor said. Consumption and tourism have recovered. The government has spent more to boost the economy, while manufacturers are expected to resume full production by the third quarter. These factors will result in high inflationary pressure, he said.
Kittiratt believes that a weak baht would support exporters. But Prasarn said high economic growth of trade partners was more important for boosting Thailand’s exports than a weak baht.
In a related development, a source said Kittiratt today was expected to submit to the Cabinet a proposal to set up a state bank development fund. Funding would come from fees that the central bank collects from state-run banks amounting to 0.47 per cent of their deposit base.
Government Housing Bank, Islamic Bank of Thailand, the Small and Medium Enterprise Development Bank of Thailand, and the Bank for Agriculture and Agricultural Cooperatives are expected to benefit from the scheme. These banks regularly ask for capital injections from the Finance Ministry, while the Government Savings Bank, which is flooded with deposits, might not benefit from the fund.
