'Time will tell' if rate hike right decision

He was reacting to Bank of Thailand Governor Tarisa Watanagase's defence of the central bank's recent rate hike.

On Tuesday, in a meeting with the media, Tarisa defended her position in raising the policy rate, citing an urgent need to address soaring inflation before prices for energy, food and goods spiral out of control.

The BOT raised the policy rate by 25 basis points to 3.5 per cent on July 16 despite opposition from Surapong, who is more concerned about economic growth than price stability and is said to be preparing additional measures to boost the economy.

Surapong also said Thailand was not the only country mulling raising interest rates to fight inflation. Supporters of the hike say this is the only way inflation can be tamed, while opponents say inflation driven by rising oil prices cannot be controlled by such means. He has always been against the BOT's plan to raise its policy rate, and rumour also has it that Tarisa may lose her job.

Meanwhile, he said people were entitled to differ, but the truth would soon become clear. He said even Joseph Stiglitz, a Nobel economics laureate, did not agree with raising rates.

However, Teerana Bhongmakapat, an economics professor at Chulalongkorn University, supports the central bank's plans, saying that few international economists agree with Stiglitz's view on inflation anyway.

He said he did not agree with noted economist Virabongsa Ramangkura's opposition to the rate hike either. Virabongsa had earlier said that rate hikes would make the cost of running businesses much higher, thereby affecting their competitiveness. He also said that the economy would be hit hard by the policy and that the central bank governor should be responsible for the losses incurred.

However, Teerana said he was worried about ordinary consumers, who are getting negative returns on their savings. Interest rates have been kept low for too long and businesses have been able to get away with affordable lending costs, he said. Teerana and many other observers believe the central bank may raise rates again - by about 25 basis points - in a few months.

 Surapong said the Fiscal Policy Office had reported that investors' confidence in the economy had deteriorated since May, and that the government would have to launch measures to boost confidence in the next two months. He did not say whether corporate income tax may be cut.