"When consumers are waiting for rate cuts, they do not make large-scale purchases of houses and cars," Chalongphob said yesterday after meeting with executives of the state-owned special financial institutions  (SFI) and Krung Thai Bank.

The economy has slowed over the past two months, so monetary and fiscal measures may be needed to prevent a further downturn, he said.

Executives of the state-owned banks told Chalongphob they could not meet the new lending targets.

Chalongphob said these banks had previously lent large sums to the grass-roots sector but was suffering from an increase in non-performing loans.

When coupled with economic deceleration, it means the state banks are issuing fewer loans, he said.

The ousted Thaksin government had used the state-owned banks extensively to issue loans in a bid to boost growth and promote itsl popularity.

Chalongphob and researchers at the Thailand Development Research Institute, an independent think-tank, criticised the past government's policy as a waste of public money.

He said economic conditions had changed rapidly.

Inflation has rapidly deflated, while the slow drop in interest rates means the real interest rates are high, he argued. He refused to comment on whether he wanted the Bank of Thailand to cut policy rates sharply at the next meeting of the Monetary Policy Committee.

Chalongphob said he asked CEOs of the state banks to inject money into the grass-roots sector while upholding prudential lending.

He said the Finance Ministry would consider several fiscal measures to prevent an economic slow-down.

The Fiscal Policy Office has projected that economic growth this year will be 4-4.5 per cent, while the National Economic and Social Development Board predicts growth of 4.5-5 per cent.

However, many investors worry growth could be lower than 4 per cent.

Chalongphob said on Wednesday that about Bt50 billion had been absent from the grass-roots sector. The economic policies of the government have become increasingly unpopular, particularly among low-income groups.

An SFI report said combined new loans to small and medium-sized enterprises and lower-income groups in January totalled Bt4.96 billion, compared with Bt5.33 billion in the same month last year.

The Government Savings Bank this year set its lending target at Bt12.8 billion, while the Small and Medium Enterprise Development Bank plans to lend Bt35 billion.

The Export-Import Bank of Thailand expects to lend Bt10 billion, and the Bank for Agriculture plans to lend Bt23.5 billion.

The Fiscal Policy Office will issue government bonds worth Bt87 billion in the third quarter of the fiscal year. It issued bonds worth Bt169.2 billion in the previous two quarters.

Wichit Chaitrong

The Nation