Eurozone factors closely monitored
Economic development in the eurozone has been closely monitored and it would be a major factor to influence the Monetary Policy Committee's decision at the May 2 meeting.
Somtham Pinto, director of Bank of Thailand's macroeconomic department, said that stumbling blocks are evident including problems in Spain's government bond issuance. However, all these have been in line with the BOT's expectation that the eurozone could fall into recession but the magnitude of troubles would be cushioned with growth in key economies like Germany, France and Britain.
Today, Spain has sold more than 3.2 billion euro in short-term debt with demand strong but interest rates sharply higher, reflecting continuing investor concern over the country's finances.
The MPC will decide on May 2 on the policy rate, which now stays at 3 per cent. The committee maintained the rate at the previous meeting, to accommodate the post-flood recovery.
Songtham added that the slower growth in China, at 6 per cent in the first quarter, could also affect Thailand's exports.
The BOT expected Thailand's export to expand at 7.8 per cent this year.
According to BOT Deputy Governor Suchada Kirakul, the Thai economy in the first quarter recovered faster than expected, thanks to an increase in consumption and investment. Though the increase is partially driven by post-flood demands, it is also bouyed by investment demand from the public and private sectors.
Though budget disbursements are slow and the export sector has not yet fully recovered from the flood crisis, this is in line with the BOT's expectation, she said. She envisioned the need for huge investment on infrastructure while the private sector must boost productivity to cope with higher wage cost.
Meanwhile, Assistant Governor Paiboon Kittisrikangwan said that frequent changes in governments resulted in discontinuity in policies and laws as well as public investment projects. Thailand's investment ratio to gross domestic product is as low as 21 per cent, including the private sector's contribution of 16 per cent.
"If we set sight on boosting the GDP by 7 per cent, we need to have the machine fixed. If we want the economy to leap frog without ruining the engine, we need to invest in infrastructure. This will assure foreign investors and draw more investment," he said.
