MPC not under pressure: Prasarn

Plans meet with Kittiratt; asset prices being monitored

Bank of Thailand Governor Prasarn Trairatvorakul insisted yesterday that there was no pressure on any of the Monetary Policy Committee's members from the finance minister's letter concerning the central bank's losses.

"After voting [on the policy rate], there was some discussion on this issue. The finance minister sent this letter to [the central bank's] chairman. He replied to the letter and forwarded a copy to the MPC. The MPC will send back a clarification letter, which is being prepared by the MPC secretary," Prasarn said.

Earlier this month, Finance Minister Kittiratt Na-Ranong sent a memo to central bank chairman Virabongsa Ramangkura suggesting that the bank's mounting losses from foreign exchange operations to stabilise the baht would make it difficult for the authority to perform its duties. He urged it to lower the policy rate to curb capital inflows and reduce the outlays needed to keep the baht's exchange rate steady against the US dollar.

Policy rate

The central bank and the Finance Ministry hold discussions on a quarterly basis and this quarter's meeting was at around the same time as the MPC meeting. The finance minister was not available for lunch on that day due to prior business and the central bank would reschedule the date for the discussion, he said.

Most MPC members voted to maintain the policy rate at 2.75 per cent at its Wednesday meeting out of concern over jumps in the prices of some assets, especially stocks and property.

"We are monitoring them [asset prices]. Most rises have been in medium and small caps. The central bank and the Securities and Exchange Commission's analyses agree that small stocks saw jumps in P/Es [price-to-earnings]. Most foreigners invest in the SET50. The SEC and the SET [Stock Exchange of Thailand] are finding measures for this, while the central bank will try to keep the rate not too low," he said.

Thailand's property prices were not too high, compared to those in neighbouring countries, but some speculation was seen in some areas where high-speed trains and roads would reach for regional linkages, he said.

There might be some misunderstanding about foreign capital flowing into the country, adding liquidity and pushing up asset prices.

"If the central bank does not get in to buy [in the money market], liquidity or money supply in the system remains the same. Rising asset prices may come from investors' search for other assets with higher returns, as returns on [bank] deposits or in the money market may be low," he said.

From the beginning of this year, most of about US$2 billion (Bt60 billion) in foreign capital poured into the Thai bond market and only a little went into the Thai stock market.

"We believe that the baht appreciation early this year is a catch-up from last year when the baht strengthened less than others [regional currencies]. It's now close to the others and is starting to stabilise. The Thai currency has moved in a narrow range for two to three weeks," he said.