BOT WILL CONTINUE TO WATCH INFLATION CLOSELY

What is your inflation forecast?

Although the inflation pressure has declined due to lower oil prices over the past few weeks, it does not mean that there is no chance it [the oil price] will surge again.

If you consider the consensus forecast, 53 per cent predict oil prices would be higher than US$125 per barrel, but 47 per cent forecast it would be lower. We cannot be completely sure, although it is currently lower than what it was at our earlier meeting.

Moreover, inflation is likely to fall because of the government's six economic measures, but the measures have a temporary effect, and it [inflation] could accelerate again after six months.

It does not mean that inflation will surge after six months because oil prices might not be at the same level. The point is that the measure could anchor inflation expectations. If the inflation rate in the next few months decreases from the July figure, it will lower inflation expectations, and inflation pressure will decline during the rest of the year and next year.

It is an issue all central banks have to be concerned about. We must consider not only price movement and changes of inflation but also the inflation dynamic. During highcapacity utilisation and a tight labour market, high inflation expectations feed into the pricing of producers and wage adjustment.

If inflation expectations drop, there will be less chance of the producers raising prices and workers asking for higher wages in advance to cover their additional burden in case inflation rises.

What is your economic growth projection?

We have not finalised it yet, but the 5.3percent growth [in the second quarter] was lower than expected, which was the result of a delay in budget spending. The budget was disbursed, but it was not distributed into the economy. That is the reason the Economic Policy Cabinet has tried to speed up spending. If the delay is set right, we hope domestic demand will not be as weak as before.

The point we were once concerned about was the global economy, but exports do not reflect that. It grew largely more than 40 per cent. Excluding gold exports, we saw exports as well as imports expanding impressively.

Will the present political turmoil drag down domestic demand?

It depends on how the political situation develops. It is hard to forecast in the present situation, and I am not a political expert. As long as it is not violent, it may not [drag down the economy]. I have lived with political uncertainty for 34 years, but the economy continues to grow.

You say exports remain sound but many countries are slipping into technical recession?

Yes. The UK, Europe and Japan already have one leg in recession due to negative quarteronquarter growth. If we consider the exports of Thailand and other Asian countries, we have not yet seen [export slowdown]. Maybe it is because export markets have diversified increasingly.

The synchronisation of the global economy and exports of Asian countries are not as they used to be. It may take time, lagging for a while before having an effect.

The reason we decided to raise the policy interest rate was the current financial condition. During times of negative real interest rate, we consider accommodation ... but it is to ease the inflation threat.

Amid the negative real interest rate and high prices, consumers try to retain their purchasing power by spending from their savings. Secondly, when they buy anything, they go for cheaper goods. This spurs spending and brings about inflationary pressure, or the prices don't go down.

You can see that the Kingdom's exports in July remained sound.

What do you think about China's economy after the Olympics?

China's economy grew more than 10 per cent. It has a lot of measures to shore up domestic demand. It cannot afford to grow at lower than 8 per cent, because it needs to annually absorb 11 million new labourers into the market. So the economy must grow higher than 9 per cent to absorb them. If there is a risk to the economy, the government is ready to introduce measures.

Does that mean you consider inflation the greatest risk to economic growth?

I'm not saying that. Although the risk is lower than previously forecast, the risk of inflation and the inflation dynamic remains, and the risk to economic growth is increasing slightly. We consider the current financial condition is too easy. It is too accommodating for the threat of inflation.

Too easy? Too accommodating?

Some economists believe an interestrate hike doesn't solve the problem of costpush inflation, while some say the BOT rate hike was too low or behind the curve. So it depends. People look at the inflation dynamic differently. but BOT's key task is to maintain stability. Once we have stability, we take care of growth. This is the overriding objective, but we don't want to keep inflation low at overall cost to the economy.