BANGKOK, May 9: Thailand’s finance minister stepped up pressure on the central bank to cut interest rates, saying it should take baht strength into account when setting policy and not just inflation, but the Bank of Thailand governor showed he remained reluctant.
Finance Minister Kittirat Na Ranong told reporters on Thursday he had called a meeting for next Monday with the central bank’s monetary policy committee (MPC) plus representatives of the private sector and government officials to discuss the rise in the baht, which has alarmed exporters.
The baht hit a 16-year high in April and at one point had risen 7 percent against the dollar since the start of the year. It has fallen back since then and traded around 29.45 per dollar on Thursday, a rise of around 4 percent in 2013, but Kittirat still wants a rate cut.
‘We will meet on Monday morning at Government House, with the MPC, the private sector and government units to get a good understanding of their roles on addressing price stability along with foreign exchange stablility,’ he told reporters.
Kittirat said this week four measures aimed at holding down the baht had been agreed between the central bank and government, but he made it clear he felt cutting interest rates would be simpler and have a more immediate impact.
The Bank of Thailand (BOT) has left the policy rate at 2.75 percent since October.
Governor Prasarn Trairatvorakul told reporters on Thursday rates were just one option available to address currency strength and it was good the authorities had prepared other measures.
‘The policy rate is one of the tools,’ Prasarn said. ‘We agree that, overall, in order to address foreign exchange and capital movements, the interest rate is among the variables. But interest rates already take on a big burden to keep the overall economy in balance.’
The central bank has highlighted fast credit growth and high household debt as a reason not to cut rates.
Prasarn said the rise in the baht was now broadly in line with that of other regional currencies.
He declined comment on when the authorities might implement the four measures, and said available measures were not limited to the four agreed.
FOUR MEASURES
The measures have not been made public but a government source said foreigners could be banned from buying short-term BOT paper.
The central bank generally issues bills of up to one year. Foreigners hold about 10 percent of BOT bills, according to Credit Suisse, and much of the foreign money that pushed up the baht earlier this year went into such short-term official debt.
A minimum holding period of three months could be set for foreigners investing in government bonds and an additional fee could be imposed on interest income and capital gains, the source said.
In October 2010 the government imposed a 15 percent withholding tax on interest income and capital gains on bonds.
The strongest measure agreed would put restrictions on the amount of capital inflows that could be freely invested, the source said.
In December 2006, in an earlier attempt to depress the baht, the government ordered that 30 percent of investment funds coming into the country should be held in a non-interest-bearing account for a year. The whole amount faced a 10 percent levy if the money was withdrawn within a year.
That measure caused the stock exchange to plunge and foreign investors to flee. Mindful of that, both Kittirat and Prasarn have ruled out the use of capital controls until now.
(agencies)
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