No conflict with finance ministry: Tarisa

Bank of Thailand Governor Tarisa Watanagase yesterday expressed her views on issues relating to the embattled BOT to a group of business editors. The following are excerpts.

Is the Bank of Thailand in conflict with the Finance Ministry, which said interest rates must stay put to maintain economic momentum?

There have been no conflicts. We have our own responsibilities. There must be a policy mix and it is natural that we look at different time horizons. We have a different focus and different methods.

Not that we don't care about economic growth, but we are concerned with growth and stability. We look at both but if we have a choice, we choose stability.

Now, domestic demand is slowing as consumers fret about higher inflation (and save). The higher rate could give them an assurance and consumers could spend more.

Moreover, though the baht has weakened against the US dollar, Thailand's real effective exchange rate, which takes into account inflation, remains higher than rival countries. As we put a brake on inflation, this would lower our REER [real effective exchange rate] and increase Thailand's export competitiveness.

What was behind the recent rate hike?

When saying that the economy is good or bad, we have to look at the overall picture. Against poor domestic demand and investment, exports have been on the rise. We can't afford to do nothing to tackle cost-push inflation. Manufacturers are absorbing rising costs, but soon they will raise prices and that will push up wages.

The rate hike followed inflation expectations. When people expect oil prices to rise, they will rise.

Seventy per cent of manufacturers, asked by the BOT, said that they have raised product prices. Over half also said that they plan to adjust prices upward in the next one to three months. If we don't tame the expectations, we will have little room to manoeuvre. The impacts are limited.

Continued loan growth in the first six months showed the economy is not as bad as thought.

Inflation is sky high and rises quickly. We have done the right thing. 

Despite the 25-point increase, our policy rate is still the lowest in region. We're more concerned with the real negative deposit rate of 6 per cent.

Affected homebuyers could have their loan maturity extended to keep their monthly instalments at the same level. Certainly, new homebuyers would have to adjust themselves, but they benefit from lower transaction fees.

But if inflation threats are intact for some time, they could demand a stronger dose and that would affect costs.

Are there threats to your position as governor?

I'm not the first and last governor. Under the new law, the Bank of Thailand is now operating with new rules and in a new environment. Tidal waves could be more frequent than usual. I endure a special role now, to smooth the transition and ensure transparency.

Enforcing a monetary policy is not like blowing a whistle, as the results will take time. If we let inflation continue for too long, the country would need a stronger dose and this could push costs sky high. It's better to take early action. Yet, there is no panacea.

What worries me is criticisms could be renewed ahead of the next Monetary Policy Committee meeting, if inflation threats do not subside then.