Bangkok--23 Jan--Spark Communications
Photo caption: Ann? Schlagel (Country Director), Prasarn Trairatvorakul (the Bank’s Governor), and Alex Gordy (Editorial Manager)
The balance has shifted over the course of 2011 from taming inflationary pressures towards supporting growth in Thailand. Raising the benchmark lending rate from 1.25% to 3.5% earlier in 2011 was part of the strategy by Bank of Thailand (BoT) to maintain a grip on inflationary pressures while simultaneously encouraging economic growth, according to the Bank’s Governor Prasarn Trairatvorakul. Yet as the global economic outlook deteriorated and the effects of severe floods set in, the Monetary Policy Committee (MPC) cut rates to 3.25% in November to support economic restoration and investment.
Trairatvorakul told the global publishing, research and consultancy firm Oxford Business Group (OBG) that while controlling inflation remained a priority for the BoT, the spate of financial problems across some of the world’s economies had necessitated a shift towards safeguarding growth.
“Until recently, we saw upward pressure on prices from the domestic economy,” he said. “However, recent developments in the second half of 2011, particularly in the eurozone and the US, indicate a sharp slowdown in the global economy. So the Monetary Policy Committee eased this normalisation process.” The floods have added to the need for monetary stimulation.
“We will later need to determine how much action will be required and the effect on inflation — but that will not come until sometime in 2012,” he said. With much lower than expected growth in 2011 as well as consumer and business confident remaining weak, the MPC has moved to support economic restoration and investment, considering any temporary increases linked to food-related shortages do not indicate any risk of a sustained acceleration in inflation.
The interview with Trairatvorakul will appear in The Report: Thailand 2012, OBG’s forthcoming guide on the country’s economic activity and investment opportunities, produced in partnership with the Board of Investment (BOI). The Group’s third report on Thailand will include a detailed, sector-by-sector guide for foreign investors, together with a wide range of interviews with the most prominent political, economic and business leaders, including the Minister of Finance Thirachai Phuvanatnaranubala.
Trairatvorakul highlighted the progress that Thailand had made in liberalising its banking sector in line with the second Financial Sector Master Plan (FSMP). He said the next phase in the sector’s development looked set to coincide with reforms that will permit ASEAN Qualified Banks (AQB) to expand their operations across the region.
“Since 1997, we have allowed several foreign banks to come in and take over local banks. In addition, there are many foreign bank branches operating here,” he said. “After 2014, we will likely see the designation of ASEAN Qualified Banks (AQB) that will be allowed to operate in every jurisdiction in the ASEAN region. We aim to reach full liberalisation within ASEAN by 2020.”
Trairatvorakul was confident that a recent move to step up the liberalisation of Thailand’s capital outflows brought no threat of currency depreciation and would still allow the country to maintain net inflows.
He pointed out that large-scale capital inflows produced risks of their own, including possible currency appreciation, which could have a negative impact on exports. “Capital inflow is beneficial, but it comes with costs, especially when it is excessive, as it was in 2010,” he said. “The best approach is a mix of policy instruments to promote economic growth while preserving stability.”
The Report: Thailand 2012 will be produced in partnership with the Board of Investment of Thailand (BOI). Contributions will also be made by the law firm Tilleke & Gibbins, the accounting and advisory firm BDO Advisory Ltd and the financial services company Thanachart Securities.
The Report: Thailand 2012 will mark the culmination of more than nine months of on-the-ground research by a team of analysts from OBG. It will provide information on opportunities for foreign direct investment into the country’s economy and will act as a guide to the many facets of the country including its macroeconomics, infrastructure, banking and sectoral developments. The Report: Thailand 2012 will be available in print form or online.
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