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RATES Central bank likely to further cut policy interest rate

 


February 5, 2008

THAILAND/INTEREST RATES
Central bank likely to further cut policy interest rate

The Bank of Thailand is likely to reduce the policy interest rate by at least 25 basis points to curb the foreign capital inflow in case the local interest rate is higher than that of the United States, according to the Fiscal Policy Office.

Chotichai Suwannaporn, director of the FPO Financial System Policy Division, said he believed the central bank would have no choice but to cut the policy interest rate by at least 0.50 per cent to prevent possible arbitrage of the interest spread by foreign investors.

He conceded BoT had a constraint in money management as long as new laws governing the central bank have not yet been enforced.

Currently, he said, the central bank had issued bonds worth Bt1.9 trillion to purchase dollars in a bid to control the baht to ensure that it is not too strong.

The BoT had previously issued bonds worth the same amount, Bt 445 billion of which were the proceeds of loans sought in the repurchase market.

Proceeds of the bond issue would be used to supervise the baht to ensure it is not strong to such an extent that could affect exports and businesses.

Lately, the country's international reserves rose to US$113 billion or Bt2.98 trillion. Of this, $90.3 billion is an outstanding reserve and $23.6 billion is an obligation under the swap contract.

Given these factors, he viewed, BoT would have no choice but to reduce the policy interest rate by a quarter percentage point at the Monetary Policy Committee's meeting on February 27.


Courtesy TNA

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