Thai economists divided on interest rates cut

Bangkok (The Nation/ANN) - Many economists believe that the Bank of Thailand's Monetary Policy Committee (MPC) will maintain its benchmark policy rate at 2.75 per cent to prevent accusations that it has succumbed to political interference.

Banluesak Pussarangsi, an executive vice president at CIMB Thai Bank, believes the rate will be left unchanged at 2.75 per cent to prevent any suggestion that the central bank has yielded to the will of politicians.

Nonetheless, a rate cut at the next MPC meeting, which will be held on February 20, is still a possibility.

"I believe the MPC will keep the policy rate [unchanged] to ensure economic stability. Any policy rate reduction would damage the credibility of the MPC, as it would face public accusations of being controlled by politicians. It would create uncertainty for the next time the MPC meetsas the flux of foreign investments will be a cautious factor," he said.

"We cannot argue that interest rates have some influence on the capital flow, as interest rates in major countries such as the US and Japan are quite low. Any major reduction in interest rates is quite risky. As a result, the MPC has blended its methods, applying both a slight reduction of interest rates together with tax collection measures [to deal with] capital inflows," Banluesak said.

Roongsak Satutum, senior vice president of the Bank of Ayudhya and manager of its Research Department, said the MPC might decide to keep the policy rate at 2.75 per cent, because looking at the Thai economy, there is no need to reduce interest rates at this time.

"Interest rates are at a low level to stimulate the economy. Monetary policy has been doing its duty to stimulate the economy, which is showing good signs of continuous growth. It is not necessary to reduce interest rates, which will make such economic growth more strongly," he said.

Roongsak said the interest rate in Thailand is the second-lowest in the region. However, the inflow of foreign capital is still at a high level, which indicates that interest rates are not the only factor in controlling such flows. If the MPC wants to reduce interest rates to slow the inflow of foreign capital, the question will be raised as to how long the interest rate will be reduced for. Such rate cuts have side-effects on the economic system, Roongsak said.

Kampol Adireksombat, senior economist at Tisco Securities, said the MPC should maintain the policy rate unchanged during this period, as the baht is quite stable, and history shows that reducing the rate does not delay the flux of foreign capital into the country.

"Past information clearly shows that reducing the interest rate will help the baht depreciate for a short period of time of only one or two months. However, the higher flows of money into the country will make the baht appreciate again. I myself don't believe that interest rates are a crucial factor in attracting capital inflow, but the economic trend should be a more favourable factor," Kampol said.

There are other costs incurred by the reduction of interest rates, especially the stimulation of higher consumption and investments, and a reduction in savings.

However, Charl Kengchon, managing director of Kasikorn Research Centre, said the majority of MPC members would favour a rate of 0.25 percentage point to stave off the massive capital inflow. The central bank does not think that it is necessary to cut the rate, but the global economy is still experiencing risk factors from hot money, which have caused the baht to rise sharply. Therefore, most MPC members are expected to prefer to see the rate cut, Charl said.


  • Why you can't buy America's greenest car 3 hours ago
    Why you can't buy America's greenest car

    Ask me or any auto expert what's the fastest car you can buy for any given amount, and we could easily cough up several options. Same for most luxurious, or off-roadable, or any other measurement. Yet there's one type of question that's far harder to answer: What's the greenest, most environmentally friendly car you can buy today?

  • Audi TT Offroad concept debuts as a 124-mpg hybrid with wireless charging 3 hours ago
    Audi TT Offroad concept debuts as a 124-mpg hybrid with wireless charging

    The TT. Audi's diminutive sports car. Since production began in 1998, the two-door coupe has aged with the pugnacity of a grizzled New Yorker, but not in size. And why would it, as the arrival of the TT RS proved, adding some grit makes for a rather captivating dish. And so you'll excuse us for being puzzled by the Audi TT Offroad concept.

  • Wednesday #sgroundup: Pirates kidnap three on Singapore tanker off Malaysia 7 hours ago
    Wednesday #sgroundup: Pirates kidnap three on Singapore tanker off Malaysia

    Here are today’s top trending stories in case you missed them.

  • Pirates kidnap three on Singapore tanker off Malaysia
    Pirates kidnap three on Singapore tanker off Malaysia

    Armed pirates boarded a Singapore-managed oil tanker in the Strait of Malacca, kidnapping three Indonesian crew and stealing some of the vessel's shipment of diesel fuel, the International Maritime Bureau said Wednesday. The attack occurred early Tuesday off Malaysia's west coast, said Noel Choong, head of IMB's Kuala Lumpur-based piracy reporting centre. The diesel oil tanker was believed to be en route to Myanmar. "IMB is aware of the attack on the Singapore-managed ship in the Malacca Straits.

  • McDonald's Hello Kitty sale site temporarily suspended due to fresh wave of Kitty mania
    McDonald's Hello Kitty sale site temporarily suspended due to fresh wave of Kitty mania

    It may not be safe to enter a McDonald’s restaurant in Singapore on Mondays starting 28 April. To celebrate the iconic Japanese character Hello Kitty’s 40th anniversary, the fast food chain announced last Friday that it would be releasing a new collection of Hello Kitty toys in McDonald’s restaurants island wide next Monday.

  • First sign of S.Korea ferry disaster was call from a frightened boy
    First sign of S.Korea ferry disaster was call from a frightened boy

    He called the emergency 119 number which put him through to the fire service, which in turn forwarded him to the coastguard two minutes later. That was followed by about 20 other calls from children on board the ship to the emergency number, a fire service officer told Reuters.