BOT's role as lender of last resort ends

The Bank of Thailand (BOT) has ended its 50-year role as the lender of last resort to aid the real sector in times of trouble, in accordance with the new BOT Act.

Assistant Governor Suchada Kirakul yesterday said the BOT would no longer provide soft loans to bail out companies but instead would focus on ensuring the stability of the country's monetary, financial institution system and payment systems as required under the new Act.

"Under the new law, we must carry out our duties according to international standards," she said.

The revised BOT Act took effect in March.

Of 31,215 debtors involved in five projects who had received approval for financial aid worth a combined Bt56.4 billion, only Bt39.72 billion has been withdrawn so far. However, a Bt20-billion project for small and medium-sized enterprises (SMEs) to improve production efficiency that was announced on February 29 has been dropped, an statement said yesterday.

The statement came after the Commerce Ministry released data showing inflation last month reached a 10-year high of 7.6 per cent amid soaring oil prices.

The BOT insists scrapping the efficiency project will not have a major effect on SMEs, because BOT loans make up only 1 per cent of total loans.

Moreover, many organisations, particularly specific financial institutions, play a crucial role in providing loans to the real sector, including SMEs. The government has also introduced measures to promote more investment.

However, the central bank will possibly give financial assistance to the real sector, in order to maintain financial stability, Suchada said.

Although BOT loans to the real sector to encourage economic development, they also increase the money supply in the financial system, which could raise inflation.

Meanwhile, BOT senior director Amara Sriphayak said headline inflation would not reach double digits if the seasonally adjusted change for inflation on a month-on-month basis remained at 0.5 per cent.

The figure reached 1.8 per cent last month due to the sharp rise in oil prices, up from 1.1 per cent in April.

"It is difficult to predict whether inflation will reach into double digits, but oil prices have not risen so much this month compared with May," she said.

BOT Deputy Governor Atchana Waiquamdee said core inflation of 2.8 per cent was in line with the central bank's forecast but that headline inflation at 7.6 per cent was above its forecast of 7.3 per cent.

She urged people to reduce negative factors as much as possible, in order to help the economy through a critical period.

Amara said political turmoil has dampened business and consumer confidence, which would in turn affect private consumption and investment.