BOT keeps its key rate at 3.25%
The Nation (11 October 2007)
Sub-prime crisis remains a concern. The Monetary Policy Committee has kept its policy interest rate unchanged at 3.25 per cent due to improving economic growth and increasing inflationary pressure. But the committee yesterday expressed concern that the US sub-prime mortgage problem could extend longer than expected. Suchada Kirakul, the Bank of Thailand's assistant governor, said the central bank needed to closely monitor the problem because it could have a negative impact on the US economy and other economies and thus affect Thailand's exports. The sub-prime problem, however, had a slight direct impact on the Thai economy, she said. Chakkamon Phasukvanich, permanent secretary at the Industry Ministry, believed the US sub-prime problem would be prolonged but would not lead to a recession. The US government had tried hard to address the problem after the sharp cut in the federal fund rate, while the UK government had injected liquidity to revitalise Northern Rock Bank. "They would not allow the problem to emerge significantly because there has been strong cooperation to solve the problem. The ways in which they addressed the problem have also been efficient," he said. Analysts have said the sub-prime crisis would have a minimal impact on Asia. In fact, capital is likely to flood into the region, resulting in an appreciation of the regional currencies. Some have concerns that the slowdown in the largest global economy would dampen exports to the US and other markets that re-export to the US market. Suchada said the BOT had forecast the economies of trading partners would not slow to lower than previous estimates of 4.6 per cent. An improvement of Asian economies could compensate for the slowdown in the US economy.
The International Monetary Fund has just lowered the world economic growth projection to 4.8 per cent from 5.2 per cent. "It is a tiny downward revision," she said. Moreover, the BOT believes the sub-prime mortgage problem has contributed to Thai commercial banks' credit slowdown. Suchada said they had been more cautious with lending as upside risks have arisen.
The assistant governor said the unchanged policy was a result of an improvement in private consumption over the past few months as export growth remained despite being at a slower pace. Inflation remains low but it has been affected by upward pressure from soaring crude-oil prices, global commodity prices and domestic price adjustments. The figure, however, was expected to be in a predicted range, she said. The BOT has raised its assumption of oil prices at the Dubai market by US$0.80 (Bt27) per barrel from the current estimate of $63.80 but keeps it at $65 a barrel for next year. "Consumers' confidence will become a positive factor on the economy as consumption has gradually recovered and the government's investment would cause a crowding effect on private investment. We have just tried to build up sentiment to encourage domestic demand," she said. She added that the political situation had also created a better picture than previously forecast. Chakkamon said private investment was likely to accelerate next year, as demonstrated by requests for investment promotion from the Board of Investment, and investment plans of vehicle companies such as Ford and Honda. Suchada did not disclose the trend for the policy interest rate, saying the current rate was suitable under acceptable economic growth and inflation. She accepted that the five recent policy-rate reductions had a time lag before feeding into the real economy. However, whether the banks further cut lending rates depends on their rate structure and funding costs. Chakkamon said the BOT should introduce any tool to urge commercial banks to trim their rates, which would ensure efficiency in the policy rate. "The central bank should apply any tools or mechanisms to allow market rates to function sooner or later," he said.
The Nation (11 October 2007)
Sub-prime crisis remains a concern. The Monetary Policy Committee has kept its policy interest rate unchanged at 3.25 per cent due to improving economic growth and increasing inflationary pressure. But the committee yesterday expressed concern that the US sub-prime mortgage problem could extend longer than expected. Suchada Kirakul, the Bank of Thailand's assistant governor, said the central bank needed to closely monitor the problem because it could have a negative impact on the US economy and other economies and thus affect Thailand's exports. The sub-prime problem, however, had a slight direct impact on the Thai economy, she said. Chakkamon Phasukvanich, permanent secretary at the Industry Ministry, believed the US sub-prime problem would be prolonged but would not lead to a recession. The US government had tried hard to address the problem after the sharp cut in the federal fund rate, while the UK government had injected liquidity to revitalise Northern Rock Bank. "They would not allow the problem to emerge significantly because there has been strong cooperation to solve the problem. The ways in which they addressed the problem have also been efficient," he said. Analysts have said the sub-prime crisis would have a minimal impact on Asia. In fact, capital is likely to flood into the region, resulting in an appreciation of the regional currencies. Some have concerns that the slowdown in the largest global economy would dampen exports to the US and other markets that re-export to the US market. Suchada said the BOT had forecast the economies of trading partners would not slow to lower than previous estimates of 4.6 per cent. An improvement of Asian economies could compensate for the slowdown in the US economy.
The International Monetary Fund has just lowered the world economic growth projection to 4.8 per cent from 5.2 per cent. "It is a tiny downward revision," she said. Moreover, the BOT believes the sub-prime mortgage problem has contributed to Thai commercial banks' credit slowdown. Suchada said they had been more cautious with lending as upside risks have arisen.
The assistant governor said the unchanged policy was a result of an improvement in private consumption over the past few months as export growth remained despite being at a slower pace. Inflation remains low but it has been affected by upward pressure from soaring crude-oil prices, global commodity prices and domestic price adjustments. The figure, however, was expected to be in a predicted range, she said. The BOT has raised its assumption of oil prices at the Dubai market by US$0.80 (Bt27) per barrel from the current estimate of $63.80 but keeps it at $65 a barrel for next year. "Consumers' confidence will become a positive factor on the economy as consumption has gradually recovered and the government's investment would cause a crowding effect on private investment. We have just tried to build up sentiment to encourage domestic demand," she said. She added that the political situation had also created a better picture than previously forecast. Chakkamon said private investment was likely to accelerate next year, as demonstrated by requests for investment promotion from the Board of Investment, and investment plans of vehicle companies such as Ford and Honda. Suchada did not disclose the trend for the policy interest rate, saying the current rate was suitable under acceptable economic growth and inflation. She accepted that the five recent policy-rate reductions had a time lag before feeding into the real economy. However, whether the banks further cut lending rates depends on their rate structure and funding costs. Chakkamon said the BOT should introduce any tool to urge commercial banks to trim their rates, which would ensure efficiency in the policy rate. "The central bank should apply any tools or mechanisms to allow market rates to function sooner or later," he said.
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