Kittiratt renews pressure on central bank
Deputy Prime Minister and Finance Minister Kittiratt Na-Ranong has renewed his efforts in forcing for the Bank of Thailand's rate cut.
Thai Rath daily newspaper quoted him as saying that he already sent a letter to the BOT’s board of governors, reminding them of their legal obligations to maintain financial stability. In the letter, he cited the central bank’s accounting loss of about Bt400 billion, incurred from baht stabilisation in light of foreign capital inflows.
"My intention is to have the BOT chairman read the letter to all board members and I also specified the requirement for the BOT chairman to write back on the response. I hope that the board, consisting of the governor and two deputies, would now learn the legal consequences," he said in the daily.
Kittiratt and BOT chairman Virabongsa Ramangkura have agreed that the policy rate must be cut sharply from 2.75 per cent, believing that it would discourage capital inflows. BOT Governor Prasarn Trairatvorakul however was uncertain that the low rate would do the wonder, while it could send negative impacts on savings and later affect financial stability.
Year to date, capital inflows exceeded $4 billion or Bt120 billion. The Stock Exchange of Thailand index hit an 18-year high due to the "hot money". Due to the inflows, the central bank had to issue bonds to absorb excess liquidiity from the financial market, to prevent bubbles. This in turn boosts the country’s foreign exchanges which are denominated in foreign currencies but forces the central bank to pay interest for the bonds. Such "accounting losses" have amounted to Bt400 billion.
Both Kittiratt and Virabongsa are convinced that while the lower rate would deter foreign capital inflows, it would also help reduce the financial burden.
In the daily, Kittiratt said that he had no intention to have the governor dismissed. "Seeing damage in front of me, I can’t let it intensify."