By Erich Parpart
“There is no guarantee that the amount for loans would increase immediately if the monetary policy is eased further because people have to watch out for risks. The current fiscal policy has more weight in terms of the stimulation of the economy,” BOT spokesman Chirathep Senivongs na Ayudhya said.
“Our assessment shows that the current level of interest is not an obstacle for doing business and lowering the interest rate will not help stimulate consumption because people are not taking loans to spend. People are actually being more careful financially and things are more about saving the money made from the lowered oil price, which we have to continue monitoring,” he said.
Inflation in negative zone
Chirathep said last month’s negative headline inflation of -0.41 per cent did not add pressure to the policy interest rate decision as the lower price of products was not broad-based and most of the products that are cheaper now are closely tied to the price of oil. Also, he said, as the overall demand still exists, lowering the interest rate would not be effective against negative inflation at the moment.
The central bank reiterated that headline inflation will be positive this year, while the real interest rate deducted by expected inflation in the next one year stands at -0.68 per cent. The consensus for the expected inflation rate next year is at 2.7 per cent.
In terms of the baht, the BOT spokesman said one of the reasons the baht is stronger than other currencies in the region is the current account surplus last year and this year, which has been put down to the drop in the price of oil. Thailand posted a current account surplus of around US$5.5 billion (Bt179 billion) as of the end of 2014.
“The lowered price of oil has improved our current account and boosted people’s purchasing power. It might also have strengthened the Thai baht, What the central bank can take care of is the flow of capital, but not the current account because that is one of the basic fundamentals,” Chirathep said.
The BOT also revealed there was no irregularity in terms of capital flows because it was usual for foreign investors to make profits in the beginning of the year, which led to a combined net outflow of around $300 million last month, but it was mostly from bonds. However, there has been a net capital inflow of about $200 million in the Thai stock market since the beginning of this month.
Meanwhile, the central bank said Greece’s decision to reject the European Union (EU)’s offer to extend its $272-billion bailout led to the strengthening of the Japanese yen on Monday, but did not affect the baht, which remained stable. The BOT believes that Greece will not default and expects the country and the EU to find a way out of the situation together.