Economist warns BOT on monetary policy
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The Bank of Thailand should not use monetary policy to stimulate the economy as it would lead to currency wars in the region, but the central bank should relax currency regulations to keep the baht weak, a CIMB Thai economist says.
The BOT’s decision to maintain the current policy interest rate was the right move because a rate cut would have led to currency wars in the Asean region, said Amonthep Chawla, head of the research division at CIMB Thai.
Year to date, the baht has depreciated 0.83 per cent against the US dollar, while Indonesia’s rupiah weakened by 3.99 per cent and the Singapore dollar by 3.19 per cent.
The regulator should be cautious with its monetary policy because several developed countries have faced currency wars, Japan, for example, injected liquidity into the market to weaken the yen, and as a result, South Korea, Taiwan and Singapore, which export goods similar to Japan’s, had to follow suit. But those economies did not grow much, while Japan has returned to recession.
CIMBT expects the baht next year to stay around 34 to the dollar.
Amonthep said the central bank should support a weak baht to help exports. The Board of Investment should increase its role in facilitating foreign direct investment by Thailand as well.
CIMTB expects the policy rate to stay at 2 per cent until the first half of 2015 before increasing by 25 basis points in the second half. The BOT’s Monetary Policy Committee next February might vote to maintain the rate or cut it if the economic results of the fourth quarter of 2014, which will be announced that same month, show a further slowdown.
External factors led by the oil-price slump, currency wars, and the effects on the Russian economy from European sanctions are affecting the Thai economy, especially exports. Therefore, government spending is a key driver of the economy because this will stimulate private investment.
However, in view of the continuing fragility of the global economy and deceleration of the Thai government’s spending, CIMBT yesterday lowered its expectation for growth of Thai gross domestic product in 2015 to 3.3 per cent from the previously expected 4.5 per cent.
“The revision is based on lower domestic consumption due mainly to high household debt and the fact that exports, which contribute 60 per cent of GDP, still face low competitiveness,” he said.
