Virabongsa foresees rate cuts under AEC
Thailand would need to lower interest rates to stem the baht's appreciation, in light of the free flow of funds under the Asean Economic Community, which will allow free flows into Thailand, Bank of Thailand Chairman Virabongsa Ramangkura said yesterday.
The Bank of Thailand would then have to lower the policy rate to cope with the inflows, which would lead to the baht strengthening against dollar.
"If our policy rate stays at 3 per cent, against 0.25 per cent in Singapore, dollars from other Asean nations would come to Thailand. Once the AEC is activated, the central bank would be under market pressure to lower the policy rate to be in line with AEC countries," he said.
Virabongsa has expressed his desire for a lower rate to support economic recovery, but his view has been countered strongly by central bank governor Prasarn Trairatvorakul, who considers that a lower rate could hurt long-term economic stability as Thailand’s effective rate is negative, which is not encouraging for savings. The domestic economy has also been buoyant without a rate cut.
In his speech at a Home Buyers’ Guide seminar, Virabongsa noted that ahead of the AEC, Thailand still needs to amend its tax structure, as the current corporate income tax rate is higher than several Asean countries. This could encourage an exodus of funds.
‘Everyone will race’
"When there’s the AEC, everyone will race in terms of financing, legal amendments and stock markets to close the disadvantages," he said.
In light of slowing exports, the government should speed up budget disbursement.
To boost the economy, it is necessary to boost exports, which could be supported partly by foreign exchange rates. At the time of slowing exports, public investment would be the replacement engine, he said.
"The government should be pressured to speed up disbursement," he said.
Monetary easing in major economies, chiefly the US, Europe and Japan, were also a concern.
"What’s terrifying is some European countries are following the US’ footsteps.
They are now competing in printing money. If it were not the US dollar, it would be worthless paper," he said.
As a consequence, some of the new liquidity will flow into Thailand, which would push up the baht and may cause bubbles.
Still, there is no sign of a bubble in the Thai property market. While many industries have to compete more in light of the AEC, the Thai property market would thrive particularly in the retirement housing market for foreign clients, he added.
