Intervention limited as two BOT insiders named deputy governors

The board of governors yesterday agreed to promote Tongurai Limpiti, assistant governor for the Financial Institutions Group, and Pongpen Ruengvirayudh, assistant governor for the Financial Markets Operations Group, as deputy governors. Their appointments will take effect on October 1.

They will replace retiring Suchada Kirakul and Sorasit Soontornkes; the latter will become president of the Deposit Protection Agency.

Siri Garnjaroendee, a member of the board of governors and a member of the Monetary Policy Committee (MPC), said that Pongpen is appointed the new deputy governor for monetary stability thanks to her experience. Volatility in the financial market is expected to escalate and the BOT needs someone who can react promptly.  

It had been speculated that outsiders might assume the roles of the two retirees, who sit on the seven-member MPC. There were fears that the policy-rate mechanism could be compromised if outsiders were appointed, given the different views on the issue expressed recently by the central bank’s chairman, Virabongsa Ramangkura, and its governor, Prasarn Trairatvorakul.

Virabongsa has so far supported the government’s low-interest-rate policy, while Prasarn has been adamant that the current 3-per-cent rate is well able to accommodate economic recovery.

Fears that the MPC would be biased towards growth rather than price stability spiked when two members at the July 25 meeting favoured a rate cut, as the export sector felt the pinch of the intensifying euro-zone crisis. The other five, however, voted for no change, taking the view that the bank should reserve the monetary ammunition the country may need if the euro crisis worsens.

And Thailand will indeed need the ammunition. As the US economy remains on a rocky path to sustainable recovery, European nations are wrangling over long-term solutions to deal with massive public debt – solutions that will likely lead to further weakening of economic prospects in the 17-member euro zone.

In July, the International Monetary Fund forecast a 0.3-per-cent contraction in the euro zone’s economy this year and cut its 2013 global growth forecast from 4.1 per cent to 3.9 per cent because of the euro crisis.

An IMF spillover report released this month, which looked at how the economic policies of the United States, China, the euro area, Japan and the United Kingdom affect one another and the rest of the world, said the euro crisis was by far the biggest concern on policy-makers’ minds.

In a worst-case scenario simulated by the IMF, it found that euro-zone output could be cut by 5 percentage points if policy-makers did not act to keep the crisis from worsening.

Prasarn, who chairs the MPC, and committee member Narongchai Akrasanee have indicated that rate cuts are possible to shore up growth. However, the central bank prefers to do this when the time is right, or price stability could be compromised given relatively strong domestic consumption.

The appointment of two BOT insiders as the new deputy governors as such came at a crucial time. In his testimony to the House of Representatives Committee on Finance, Fiscal, Banking and Financial Institutions on Tuesday, Prasarn had insisted that the central bank had capable insiders for these jobs.

The board’s decision yesterday supports the BOT’s course, as the number of insiders on the MPC – who are believed to understand well when to act on the policy rate – is maintained at four. The three outsiders are Narongchai, Aswin Kongsiri and Ampon Kittiampon.

According to a source at the central bank, normal practice is the governor proposing one name for one vacant position. This time, the governor nominated three for each position. Pongpen won the appointment, beating Paiboon Kittisrikangwan, assistant governor for Monetary Policy Group; and Amara Sriphayak, assistant governor for Planning and Budgeting Group.