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Growth to pick up in H2: BOT

Feb 05. 2015
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By Erich Parpart

The Nation

Bank of Thailand Governor Prasarn Trairatvorakul believes gross domestic product could expand by 4 per cent this year.

"Quarter-to-quarter economic growth will be gradual in the first half of the year and it will become more apparent in the second half when capital from government investment enters the economic system," he said yesterday.

If the economy does not pick up as expected by the second half, the central bank still has room to ease monetary policy even further to stimulate the economy, he said.

Falling oil prices and the recovery of the tourism industry would be the two main drivers of the economy this year, while the expected increase in government spending would be the "hope" and supporting factor.

Merchandise exports will grow but at a low rate because of the slowdown in global demand and the lowered competitiveness of some Thai products due to limitations in the manufacturing process.

"The current level of monetary policy is adequate for the predicted GDP expansion but going forward, if economic activities are largely different and in a direction that is lower from what we have expected, monetary policy still has room or space to ease in order to support the economic recovery.

"But we have to keep in mind the effectiveness of the changes in monetary policy," he said.

"Fiscal policy is coming along since there is a functioning government and in general, it can stimulate the economy more than monetary policy since monetary policy can only create a condition, but you cannot force people to react.

"For example, just as you cannot force a horse to drink water when it is not thirsty, you cannot force commercial banks to give out loans when the economy does not look good and they have to watch out for credit risks even though there is a higher amount of liquidity," he said.

Regarding the Joint Standing Committee on Commerce, Industry and Banking’s request to meet with the central bank on Wednesday to discuss the effect of the strengthening of the baht on export competitiveness, Prasarn said the changes in the baht since the beginning of this year was only minimal, at 10-20 satang.

He was curious about the private sector’s concerns since the baht used to fluctuate by 50 satang in some periods but the private sector could still cope in the past.

The Thai unit has only gained by 0.86 per cent this year to Wednesday and by 0.74 per cent from the same period last year.

The export sector should concentrate more on increasing the competitiveness of Thai products to improve the sector’s revenue instead of pinning their hopes on the exchange rate for profit, the governor said.

Core inflation is still low and predicted to be about 1 per cent this year. The prices of products are still stable, while headline inflation is low because of falling oil prices, and not because of falling demand.

In reference to other central banks’ recent actions to ease their monetary policies, Prasarn said different central banks have different concerns.

Singapore is more intertwined with foreign markets, while Malaysia is an oil exporter, so their actions are as expected in light of the impact of the global economy, while Thailand’s economy is in the recovery phase, so the current monetary-policy direction is different. The move by the People’s Bank of China to lower its reserve ratio is a measure that was not common in Thailand since the changes in reserves here would not be as effective. The bank’s decision would not affect the tourism situation in Thailand, since most Chinese do not take out a loan to go on vacation.

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