Oil price 'may not be the only factor for policy rate'
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Oil prices alone will not drive the Bank of Thailand's monetary policy after switching the basis for inflation targets to headline instead of core inflation, contrary to a suggestion by Moody's Investors Service, said Prasarn Trairatvorakul, governor of
Moody’s said last week that the inflation-target switch should open up more room for a cut in the policy interest rate, since it would mean that the BOT’s Monetary Policy Committee would have to include energy prices in its decision-making in the future.
But Prasarn said: “The core inflation target is concentrated on demand, and it has been successful for the past 10-12 years. Headline inflation would also consider the supply side, which means that it would be easier to communicate the inflation target to the people, but it would also mean that the headline target would swing more than the core target, which is more stable.
“Nevertheless, the comment that the target switch would immediately mean that the MPC would have more room to lower the benchmark interest rate since the global oil price is low [and predicted to fall further] is a false idea. The MPC has to take into consideration many factors, including … the prices of other products such as food, and if the global oil price falls it does not mean that the interest rate will automatically fall also.”
Prasarn said the central bank had proposed the new inflation-targeting regime to the Finance Ministry, which would have to seek approval from legislators before the switch.
