Feb 23, 2013

Thailand - Rates will not be kept too low: BOT governor

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Prasarn sees some signs of property market speculation

Thailand's central bank will not leave interest rates at very low levels, the governor said yesterday, a day after the Bank of Thailand (BOT) kept its policy rate on hold despite government calls for a cut to deter "hot money" inflows.

Speaking to reporters, governor Prasarn Trairatvorakul did not specify any timeframe for his comment on rates.

He has frequently said that leaving interest rates low for too long could lead to financial imbalances. "If baht deposit rates are low, more people may want to move to other assets" that yield higher returns, such as stocks and property markets, Mr Prasarn said.

The central bank had seen signs of speculation in the property market, but only in certain areas, he added. "Compared to other countries in the region, our prices are not too high. We have seen speculation in some provinces such as Khon Kaen, but it is not system-wide yet," he said, referring to a province 450 km northeast of Bangkok.

On Wednesday, the central bank's monetary policy committee left its policy rate at 2.75 per cent by a 6-1 vote, with one member voting for a cut. It has been at that level since October.

To cope with the global financial crisis that began in 2008, the central bank steadily reduced the policy rate from 3.75 per cent in October that year to 1.25 per cent in April 2009, and it stayed at that record low level until mid-2010.

The central bank said the current rate was appropriate for economic growth and noted risks related to high credit growth and a slight increase in inflationary pressure.

Finance Minister Kittirat Na Ranong said earlier this month he had written to the central bank to press his case for a rate cut.

Mr Prasarn said the policy committee would reply to the letter to explain the rate decision, adding he did not feel any pressure from the minister's move.

Most economists expect the policy rate to remain unchanged for the rest of 2013 but some think a rise is possible later in the year because inflation, under control at present, could pick up again.

Mr Kittirat has said the policy rate is too high and has argued that was one of the factors attracting capital inflows that have pushed up the baht, alarming exporters.

The baht has been relatively stable this month and traded at 29.88 per US dollar yesterday, a little lower on the day, reflecting dollar strength after Federal Reserve policy meeting minutes sparked speculation about the Fed could tighten policy.

With a rise of about 2.5 per cent against the US dollar, the US dollar is emerging Asia's strongest currency this year.

More than US$2 billion in foreign funds had flowed into the stock and bond markets this year, Mr Prasarn said.


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