BOT governor Tarisa Watanagase briefed Finance Minister Chalong-phob Sussangkarn and other senior officials about the central bank's monetary policy at a meeting Thursday. She said the BOT realised the need to cut the one-day repurchase rate to boost economic growth.

"Khun Tarisa told the meeting that the BOT intended to cut the key rate by half a percentage point at the next meeting if inflation remained low and the oil prices do not increase highly," said the source.

The next meeting of the Monetary Policy Committee is scheduled for April 11.

The source said meeting participants recognised a slowdown in the economy and the need to lower interest rates to bolster growth.

The source said Tarisa has been concerned about the central bank's image after coming under pressure from the Finance Ministry and critics over its monetary policy.

"She does not want anyone to think that the central bank is under pressure. She wants the market to acknowledge that the BOT Monetary Policy Committee is the only one that makes the decision on the rate change," said the source.

To brush up the negative image, leaders of the ministry and the central bank addressed a joint press conference after the two-hour meeting, sending a signal of transparency and independence in policy-making.

Several economists, including Chalongphob, have earlier suggested that the central bank sharply cut the key rate to boost the economy and discourage foreign inflows, which have led to the baht's appreciation.

The baht broke the key barrier of Bt35 to a US dollar last week following big dollar sales by exporters, who are panicked that the baht will continue to appreciate once the withholding requirement is revoked.

The BOT has tried to tell exporters that the currency will not be affected by the revocation because of the requirement that investments be fully hedged. But the baht could continue to strengthen as a result of the current account surplus, capital inflows in portfolios and direct investment.

The central bank has also insisted exporters would not lose their competitiveness because other currencies have also become stronger, almost in keeping with the baht trends. The competitiveness can be partly measured by Nominal Effective Exchange Rate (NEER).

The exporters should consider not only the baht against the dollar but also other currencies against the greenback.

For example, Thai, Chinese and Indonesian companies export the same type of T-shirt, which are sold at the same price of US$1 per piece. The value of the currencies against the greenback are Bt35, 8 Chinese renmenbi and 9,000 Indonesian rupiah.

In the first case, the three currencies appreciate by 10 per cent against the dollar. The Thai exporter will receive only Bt31.8 per piece, while the Chinese and Indonesian exporters will get 7.3 yuan and 8,180 rupiah, respectively.

To maintain their export income of Bt35, 8 yuan and 9,000 rupiah, the three companies can raise the selling price to US$1.1 equally.

This means the Thai exporter's competitiveness in terms of price will not be lower, if the baht is stronger in line with other currencies.

But the situation will change in the second case, if the baht is up by 10 per cent, while the two currencies are only 5 per cent stronger against the dollar. The baht will be Bt31.8 to the dollar but the Chinese yuan and the Indonesian rupiah will rise only to 7.6 and 8,570, respectively.

As a result, the Thai exporters lose competitiveness in terms of price as Thai exporter must quote the price at $1.1 but the others can sell at $1.05 each.

Wichit Chaitrong,

Anoma Srisukkasem

The Nation