Inflation, bubble risks, balanced growth behind rate cut: BOT
The Bank of Thailand has reiterated that two key risks to the economy, inflation and asset bubbles, were among the factors taken into account in the recent decision to cut the policy interest rate, while stressing that the benchmark rate also had to be se
BOT Assistant Governor Paiboon Kittisrikangwan yesterday said the Monetary Policy Committee (MPC) had taken all factors into consideration when setting the policy rate, both in support of and in order to balance the economy.
The rate has to support economic development without any trouble arising in terms of either inflation or bubbles, he said.
"The policy rate is a major factor for the economy. Therefore, we have to consider it in an integrated way because of its effects on savings, investment, spending and borrowing," Paiboon said.
The MPC recently cut the policy rate by 25 basis points to 2.75 per cent.
The assistant governor said the rate cut had passed into the system relatively effectively. After the reduction, money-market rates fell while some commercial banks also cut their interest rates.
Paiboon insisted that curbing the capital inflow was not the main reason for the rate cut.
"If the economy expands, there will be risk-on market sentiment, and investors will take risks. However, when the markets see risk-off sentiment, capital will flow out. Such factors affect capital movement and are more important than interest rates," he said.
Asked whether monetary-policy direction would be eased throughout next year, Paiboon could not provide a definite answer.
"We have to consider the [economic] balance. Aside from economic growth, inflation and other factors – including financial stability, credit and household debt, and property – remain important. We have to take all factors into consideration," Paiboon said.
As to concern over a property bubble, he said he had not seen any bubble in the sector. Although property prices have risen sharply, they are not at alarming levels, he said, adding that commercial banks had strict lending procedures in place.
However, the central bank continues to monitor the situation, he stressed.
Songtham Pinto, director of the BOT’s Macroeconomy Division, said the 3-per-cent year-on-year expansion in gross domestic product for the third quarter revealed by the National Economic and Social Development Board was in line with the figure predicted earlier by the central bank, and that – buoyed by domestic demand – the country was still on the right growth track.
"The revealed GDP growth figure for the third quarter is not different from our earlier projection. Domestic demand is still in good condition. Domestic investment and consumption, which grew respectively by 16 per cent and 6 per cent in the quarter, also encouraged growth of overall GDP, which surged by 1.2 per cent in the third quarter compared with the previous three months," Songtham said.
