Her statement was a reaction to an earlier news report quoting a Finance Ministry source blaming the BOT for issuing too many bonds to absorb liquidity in the market after it intervened to weaken the baht last year.

The BOT issued bonds worth Bt500 billion last year and Bt900 billion just in January alone. It also plans to issue Bt130 billion in bonds in February.

Tarisa insisted that the central bank needed to issue the bonds to absorb liquidity flooding into the economy in order to keep price stability on track. The BOT currently has quite limited tools to absorb the money, she said.

"There is a huge amount of liquidity in the system. If not absorbed, it could encourage inflationary pressure," said the governor.

The ministry source was quoted by the media as blaming the central bank for the huge amount of bonds it has issued, saying the bonds brought about too an high interest burden because the BOT slashed the policy interest rate too late.

However, Tarisa argued that the ministry agreed with the BOT on the bond issuance.

"The ministry has approved the BOT's request to issue the bonds," she said.

Tarisa also said the BOT had issued a higher amount of bonds than other central banks because it has fewer tools to manage liquidity. The BOT must rely largely on bond issuance but other central banks can also take deposits from commercial banks.

She said the draft BOT Act, if implemented, would allow the BOT to take deposits from commercial banks with interest payments.

As a result, the BOT would have more monetary tools to handle liquidity in the system.

Commercial banks that deposit at the BOT would receive interest from the central bank similar to the returns they obtained from holding BOT bonds, she said. She did not, however, disclose any details about interest payments.

Anoma Srisukkasem

The Nation