Policy rate cut not the only defence
Re: "Fight back against cheap capital inflows", Opinion, February 1.
Thanong Khanthong was right in reminding the Bank of Thailand's board chairman Dr Virabongsa Ramankura that there are other ways besides slashing the country's policy interest rate to stem foreign capital inflows.
Thanong reasoned that Thailand's policy rate at 2.75 per cent is already one of the lowest in Asia. Hence, to simply cut interest rates will not help stem capital inflows totally - and will prove futile. Even worse, it will likely expose the country to runaway inflation.
According to Thanong, Thailand, like many other countries, will have no choice but to defend itself against the impending "currency war". Measures such as a higher withholding tax for short-term investment in bonds, higher taxes on property transactions, and capital gains tax on the stock market should be introduced.
Furthermore, Asia should look for ways to diversify away from the risks of sharp US dollar devaluations by creating a special regional financial architecture of its own. Increasing the role of gold and the Chinese yuan instead of the fluctuating US dollar was also a good choice.
Hence, I think some people at the BOT and the government should take a crash course in "Sensible Economics" urgently.