Pridiyathorn applauds decision to maintain 1.50% policy rate, weaker baht
The decision by the Bank of Thailand's Monetary Policy Committee (MPC) to keep the benchmark interest rate at 1.50 per cent was correct, as the rate is currently the lowest in the region, said Deputy Prime Minister MR Pridiyathorn Devakula.
Meanwhile, the weakening of the baht is also appropriate because it will benefit Thai exports, which should become evident in the coming months, he said.
The central bank is avoiding intervening in the exchange rate, and has allowed market mechanisms to manage the baht’s value.
Operators of small and medium-sized enterprises are concerned that a further rise in labour wages, beyond the Bt300-per-day minimum, would push up their production costs and eventually drive them out of business.
Pridiyathorn claimed that SMEs were struggling with wage expenses of at least Bt9,000 per employee a month. Thailand’s minimum wage is currently the highest in Asean, excluding Singapore, he noted.
The economy has steadily improved after shrinking by 3 per cent in the first quarter, despite the global economic slowdown, but exports continue to be adversely affected by lower demand as many countries that trade with Thailand have sluggish economies.
Grey businesses
The government’s aggressive tackling of "grey businesses", such as those involved in gambling and narcotics, has affected the huge amount of money made through illegal means in circulation in the economy. This is likely to keep economic growth modest for about a year, Pridiyathorn said.
When asked whether the government’s economic team needed Dr Somkid Jatusripitak, Pridiyathorn said no, as the team was handling its work competently.
Meanwhile, Kobsidthi Silpachai, Kasikornbank’s head of markets and economic research at its capital markets business division, said Thailand’s policy rate was expected to stay at 1.50 per cent this year whatever the US Federal Reserve decides to do with its benchmark rate in the third quarter.
He said the MPC would base its decisions on how the "reforms" mandated by the current military regime facilitated private investment. Enhanced private investment would spur domestic consumption and inflation would increase, likely resulting in a rise in the policy rate.
Kobsidthi said the previous policy-rate cuts might not directly benefit the export sector but could help increase exporters’ baht liquidity after the currency’s depreciation in the past two months.
"Looking ahead, foreign-exchange policy should be the proper tool for the central bank in helping sustain exports rather than policy-rate cuts," he said.
