Wednesday, February 26, 2020

Views on need for interest rate rise diverge at the top

Jul 04. 2018
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FINANCE Minister Apisak Tantivorawong is in no hurry to see interest rates go up, even as the Bank of Thailand has put out signals that a rise in its policy rate may be on the way if the economy continues to grow and inflation pressures build.

The apparently diverging viewpoints emerged after the central bank said it “may find less necessity for the current monetary policy easing” and lift the policy rate in response to the country’s sustained economic growth and if “inflation tends to more clearly stay in the inflation targeting framework”.

Apisak said there is no reason for the policy rate to rise, but pointed out the division of responsibilities that sees the direction of the policy rate set by the BOT’s Monetary Policy Committee (MPC), independently of the Ministry of Finance’s views.

So far, the committee has taken good care of the policy rate, Apisak said, noting that the overall economic conditions should be taken into consideration before any rate increase.

“It depends on our necessity for the rate rise. We have complained about the baht appreciating too much. Now, the currency has depreciated and this is better for farmers as they can gain from higher export prices.”

Apisak said the ministry is sticking with its economic growth target of 4.5 per cent for this year, as all sectors have been gaining this year.

“We have seen good signals. We believe that our domestic economy is stronger. Certainly, we depend highly on exports to drive the economy. But now, we have tourism-related services to bring us higher revenue,” he said.

As for the prospect of a global trade war, Apisak said that Thailand, as with Vietnam, would likely be among the beneficiaries as emerging-market countries may experience only a limited impact from a rush to erect trade barriers in major economies.

“Our export products are not those that have been sanctioned,” Apisak said. “Meanwhile, we also have good distribution channels within Asean and depend less on the US market. Asean countries have high purchasing power and when trade wars occur, Asean countries may not get into trouble.”

The government has sought to redistribute income to low-income earners through the use of state welfare cards and that an increasing number of community-level shops have registered for value-added tax rebates to offset the impact from the welfare card programme.

Jaturong Jantarangs, the BOT’s assistant governor for the Monetary Policy Group and secretary to the MPC, said that the MPC would take local conditions into account as the main factors in determining the need for an increase in the policy rate.

Although the central banks of major economies and countries in the region have reduced their monetary policy easing, Thailand has taken a different path. This reflects the country’s stability in its external positions and the manageable level of risk to the stability of the financial system, Jaturong said.

He said that if the economy held to its growth path, with inflation firming within the targeting framework, “the current monetary easing may become less necessary”. A rise in the policy rate would become more appropriate as “an option in the policy space in the future”, Jaturong said.

 “Although the Thai economy has expanded satisfactorily with external stability, the committee has viewed that we should not become complacent in the face of a tightening global financial market situation. And the business sector should make preparations for this,” he said.

 “The economy faces higher risks and these are more evident than those considered at every previous MPC meeting this year,” Jaturong said, citing the intensified concerns over a trade war.

Despite these pressures, less impact on Thai exports is seen for this year, but a greater effect on overseas shipments could be felt next year if the trade restrictions play out as feared.

According to the edited minutes of the MPC meeting on June 20, released yesterday, the committee voted 5 to 1 to keep the policy rate unchanged at 1.5 per cent on the view that accommodative monetary policy remained an important factor in sustaining domestic demand growth and facilitating a gradual rise in headline inflation towards the target.

Nevertheless, the committee discussed “the conditions and appropriate timing to begin normalising monetary policy” in the future. The committee viewed that, should economic expansion continue and inflation move more firmly within target range, the need for the current stance of “extra accommodative” monetary policy would start to decline. Conversely, “the need for a higher policy rate, in order to build policy space in the future, would increase”, the minutes said.


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