Bank of Thailand issues call for spending spree

She said this was because the central bank needed to raise its policy interest rate to fight inflation before it is too late.

Atchana Waiquamdee said the government could achieve 6-per-cent growth if its budget disbursement reached 94 per cent and state enterprises actually used at least 80 per cent of their investment budget.

Skyrocketing oil prices could affect economic growth, as the current price is already beyond the central bank's worst-case scenario of US$113 (Bt3,800) per barrel. But the better-than-expected US economy was a positive factor for the Kingdom's economy, she said.

The deputy governor said the central bank needed to control "inflation expectation" amid a negative real policy interest rate or else consumer spending would accelerate, which would fuel inflation incessantly.

Moreover, the country's capacity use is nearly full, because the labour market is tight with a low unemployment rate. Rising prices of goods and services will put additional pressure on wage adjustment, Atchana said.

"We must consider whether the real policy interest rate is proper for the economy. If we do not slow down inflation, it may not stay under control. This will force us to use a strong dose of medicine, which would eventually drag down the economy," she said.

"Giving gradual doses and keeping a close eye on whether the economy can bear them or not is better than letting inflation overshoot and eventually get out of control," the deputy governor said.

Nimit Nontapunthawat of Bangkok Bank said if inflation expectation was allowed to occur, inflation would be high and prolonged. This would dampen the country's savings, including deposits of Bt6 trillion, resulting in a slump in purchasing power and economic growth.

He predicts the baht will move between 32 and 34 to the US dollar this year.