Consumers lack confidence

The central bank's decision yesterday showed that the inflation risk remains the major concern of the Monetary Policy Committee, in spite of calls from the government for the central bank to not increase, or even lower the rate, to increase consumption and boost the economy.

Deputy Finance Minister Suchat Thadathamrongvej naturally responded that he disagreed with the rate rise, for it would dampen the prospects for economic growth, taking into account the recent drop in oil prices.

However, the bad news is that the recent drop in oil prices could be temporary. The consumption of commodities in rich countries may have fallen but the demand for these commodities is set to further increase, thanks to recent development in China and India.

In spite of the drop in oil prices, the baht was recently depreciating against the US dollar, putting additional inflationary pressure on the economy. Unfortunately, the government's six-month economic assistance package is temporary and unlikely to curb inflation in the long term.

Standard Chartered Bank yesterday released a report saying that the baht has been under pressure due to a combination of economic and political factors. On the economic side, the external balance has seen significant deterioration in recent months and this looks set to continue in the near term. Growth is slowing and inflation is still high. Therefore, if the interest rate is low, people will have less incentive to save money with banks.

Consumers should learn that the era of low interest rates is over as the world is facing inflation threats. The government may have to place higher priority on sustainable growth instead of low-quality growth in order to promote short-term consumption.