Govt. “bullets” must be ready

The Nation, October 6

Govt. bullets must be ready

Monetary policy stands ready for use if the global economic situation worsens and the Thai economy requires a stimulus, while fiscal policy-makers should leave room for manoeuvre if rising global uncertainties develop to an extent that threatens the economy, the governor of the Bank of Thailand said yesterday.

“The policy rate has gradually returned more to the normal level following the [domestic] economic recovery. The state should have its [monetary and fiscal] bullets ready for when the economy needs them in the future,”said BOT chief Prasarn Trairatvorakul.

Speaking at the third SCB (Siam Commercial Bank) Annual Conference on the Economy, this year titled “Thailand: Moving Forward with the New Government”, he said that next year, fiscal spending should be focused on investment to lift the country’s economic fundamentals, and not on consumption.

“Investment should be in infrastructure like transportation, the improvement of labour productivity and an increase in fuel efficiency, all of which are required for raising the country’s productivity,”he said.

As the Thai economy is open, with about one-third of overall trade being with the United States, Europe and Japan, some adverse effect on the economy is unavoidable through any reduction in exports to advanced economies, he said.

However, it is too early for the central bank to provide a clear picture of the impact in numbers, the central-bank chief said, adding that the economic data have not as yet indicated any negative impact from the increasing uncertainties and risks in the US and Europe.

If the US and euro-zone problems do not spread because decisive and systematic resolutions are found, the Thai economy will likely experience very little slowdown thanks to the still-expanding economies of emerging markets and regional demand, Prasarn said.

In the worst case of the US and Europe experiencing a sharp slowdown, or even a recession, and the global economy faltering, the Thai economy would likely follow by slumping into a sharp slowdown of its own, he said.

As global uncertainties rise, a volatile net capital inflow into Asia could be expected, and the baht would likely appreciate amid currency volatility, he added.

“Global uncertainties have created challenges for policy decision-making. We need to weigh the risks to economic growth and the risks to inflation,” he said.

“Inflationary pressure remains, despite the lowering of fuel and commodity prices due to slower domestic demand, Prasarn said.

“Product prices could rise, given government measures such as the rice-pledging programme, the abandonment of measures for lowering the cost of living, and high inflation expectations, the BOT governor said.

Vichit Suraphongchai, chairman of the executive committee of Siam Commercial Bank, said the euro-zone crisis could adversely affect exporters and importers.

They should not panic, but need to keep a close watch on developments, he added.