NESDB argues for cut in policy rate to lower business costs
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THE NATIONAL Economic and Social Development Board (NESDB) believes that the policy interest rate could be lowered to help cut business costs and support the current initial stage of economic recovery.
It also urged the Bank of Thailand to come up with measures to mitigate the strength of the baht, which is deemed to be stronger than other currencies in the region.
The NESDB said the gross domestic product expanded by 2.3 per cent year on year in the fourth quarter of 2014, after an increase of 0.6 per cent in the third quarter.
It expects that economic expansion in the first quarter of 2015 will be better than in the final quarter of last year.
Overall, GDP on a quarter-to-quarter basis increased by 1.7 per cent in the final three months of the year, after seasonal adjustment, resulting in the actual GDP growth in 2014 of 0.7 per cent.
The NESDB has maintained that the economy will expand by 3.5-4.5 per cent this year despite cutting its export-growth prediction for 2015 from 4 per cent to 3.5 per cent.
“There is no fear of deflation since consumption is increasing, income is rising and the economy is expanding. But the prices of products are too low.
“Some countries would have already come up with some sort of monetary measure when the inflation rate reached zero – they do not wait until inflation is in the negative zone before they do something,” said Arkhom Termpittayapaisith, secretary-general of the NESDB.
“Many nations including China and Asean countries such as Singapore have lowered their interest rates, and they did not wait until their inflation was lower than zero. The people who are in charge of this country’s monetary policy might want to take another look at this point,” he said.
He also noted that the BOT had itself had said there was room for a more accommodative monetary measure.
He believes that the central bank will not get the effect it wants by continuing to hold on to the current policy rate much longer.
“If we can help businesses, especially SMEs, lower costs, it will allow them to be stronger … and the economy still needs some more monetary stimulation to help it get back into full gear.”
He added: “The baht has recently become stronger from the quantitative-easing policies in Japan and the euro zone, which has lowered our export competitiveness in terms of the exchange rate.
“If we leave it like this, the gap between our nominal interest rate and other countries’ rates will be wider, and even though the interest rate in the country is low, it is still not low enough.”
He expects the US Federal Reserve to delay the increase of its benchmark interest rate until the end of the year, since the “quantitative-easing war” is continuing.
Meanwhile, Arkhom said Thailand’s GDP expansion in the first quarter would “definitely” be better than in the last quarter of 2014 thanks to recovering domestic consumption, private investment and the acceleration of government spending.
He said the NESDB foresaw better growth in 2015, since there were more positive than negative factors to help support the economy.
Positive factors, he said, included the gradual improvement in the export sector, which was expected to expand in line with global economic recovery at 3.5 per cent compared with a 0.3-per-cent expansion in 2014.
Private investment should recover, expanding by 5 per cent thanks to increased investor confidence, and the tourism sector will also recover, he said.
Arkhom predicted expedited public expenditure and investment, forecast to grow by 5.6 per cent compared with 2.8 per cent in 2014.
Car sales and auto production will also recover, thanks to the effects of the previous elected government’s first-car policy wearing off and declining fuel prices.
He added that the private sector should be supported this year by the better-than-expected recovery of private investment in the second half of last year, an acceleration in business-permission approvals by the government, and Board of Investment privilege approvals reaching a record high of Bt2.1 trillion last year.
