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MONDAY, September 26, 2022
Former Thai finance minister warns against rapid rate rise

Former Thai finance minister warns against rapid rate rise

MONDAY, July 25, 2022

Former finance minister Suchart Thada-Thamrongvech has urged the Bank of Thailand not to follow the US by raising the interest rate quickly, warning that such a move would hit Thai exports.

Hiking the policy rate too rapidly would drive up the baht’s value, undermining the competitiveness of exports which make up 70 per cent of GDP, Suchart said on Monday.

The US Federal Reserve looks set to hike its benchmark by 0.75 points for the second successive month on Wednesday in a bid to curb soaring inflation.

Meanwhile the Thai central bank’s Monetary Policy Committee is expected to raise its key interest rate from a record low at its next meeting on August 10,

The MPC left its key rate at a low of 0.50 per cent in May 2020 after three cuts that year to mitigate impacts from the Covid-19 pandemic.

Suchart urged the central bank not to heed calls from speculators who want the BoT to follow the Fed’s example to avoid baht depreciation and a drop in Thai stocks from foreign outflows.

“If the baht is stronger than other currencies, Thailand’s exports will drop. This will result in reduction of manufacturing output and employment,” he said.

Falling exports would hit GDP and the profits of Thai companies, which see their share price fall.

Suchart added that economists have warned against raising the policy rate too sharply.

“What speculators say will be good in the short term will be bad for the country in the long term.”

He added that inflation in Thailand and the United States were caused by different factors. The US economy had overheated with demand growing faster than manufacturing capacity because of too much cash in the economy.

In contrast, Thailand’s inflation was caused by imports as Thai economic activity was only just starting to recover from low production and employment rates.

He advised a rate rise of 0.25 points, insisting the government must promote exports and the service sector to generate income.

He admitted that a weaker baht would result in higher costs for oil and fertiliser but said the impact would be offset by higher income from exports.

He added that the government could help reduce the fuel price burden on the public by altering the retail price structure and reducing excise tax.