The committee kept its 14-day repurchase rate unchanged at 5 per cent for the fourth straight time, one day after the US Federal Reserve held the federal funds rate at 5.25 per cent.

Amid huge pressure to slash the key rate to slow down the gathering strength of the baht, BOT Assistant Governor Suchada Kirakul said inflation targeting remained the central bank's policy target and not the exchange rate.

Propelled by the committee's decision, the baht rose further yesterday. It opened at 35.28 to the US dollar and closed at its peak of the day, 35.24/35.26, bringing more pressure on the central bank to intervene in the market.

Suchada said, "The economy continues to grow, but the momentum of private investment needs to be closely monitored, because price pressure remains in the economy."

Despite 4.7 per cent growth in the third quarter, private investment expanded only 2.9 per cent, shaking the committee's confidence that it would recover to drive the economy.

However, Suchada remains optimistic that private investment will eventually pick up next year, due to improving consumer and business confidence. High liquidity, low inflation and accelerating government spending will also help bolster private investment. The BOT's economic forecast for this year remains unchanged, at growth of 4.5-5 per cent.

She said if the pace of private investment slowed down, the Monetary Policy Committee would have to weigh the risks of an investment slow-down on one hand and inflation on the other before making any decision on policy changes.

Suchada was adamant, however, that inflation targeting remained the BOT's monetary framework. The central bank believes that maintaining economic stability by controlling inflation will lead to sustainable economic growth in the long term.

The interest-rate spread is not a main cause of currency movements, because capital continues to flow into Thailand, where the interest rate is lower than in the US, she said. While the appreciating baht has a negative impact on exporters, it also has a positive impact on importers and inflation.

"We must look at the long term, not the short term," she said. "Keeping inflation low will help lower the real effective exchange rate. If inflation is high, the real exchange rate will be higher, resulting in reduced competitiveness."

At its meeting on January 17, the Monetary Policy Committee will adopt and set the one-day repurchase rate as the country's key rate, instead of the present 14-day rate.

Suchada said the overnight rate would reduce distortion in market transactions and link with market interest rates more efficiently than the 14-day rate.

Economists evaluating the move say the change is technically a cut in the policy rate, because the overnight rate is lower than the 14-day repurchase rate.

Suchada argues that the two rates are slightly different.

Deputy Prime Minister and Industry Minister Kosit Panpiemras yesterday said the BOT had the freedom to take care of the baht, now that rises in the currency had heavily affected Thai exporters.

When asked to comment on the BOT's decision to intervene in the market by buying dollars until it faced a significant increase in its dollar reserves, Kosit said, "If the BOT still uses the same old measures [to manage the baht], they will get the same results.

"If the central bank, which is equipped with well-rounded information, can use the tools that they have to manage the currency, it will help business operators cope more effectively with the currency fluctuations they are facing at the moment."

However, Kosit pointed out that the central bank could not assume all responsibility for movement of the currency. Exporters should also adjust themselves, because the currency risk factor has been recognised for quite a long time, and the baht's rise has not been faster than expected.

Asked whether he believed it was necessary for the central bank to cut interest rates to ease the baht's appreciation, Kosit said, "The interest rate is now in a downward trend. So it does not matter much when the rate is cut."

Kosit said the country's exports would grow about 10-12.5 per cent next year, in accordance with Commerce Ministry expectations. That forecast is based on the assumption that the baht will not become too strong. He said the gross domestic product should grow 4-5 per cent, in line with projections by the National Economic and Social Development Board.

Anoma Srisukkasem,

Somruedi Banchongduang

The Nation