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Thai central bank chief warned over rate policy


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August 9, 2008

Thai central bank chief warned over rate policy
Thai finance minister Surapong Suebwonglee and his deputy put pressure on the Bank of Thailand (BoT) chief on Friday to switch interest rate policy to promoting economic growth rather than fighting decade-high inflation, said Reuters.

In an escalation of the spat between the bank and government, which fears higher rates will crimp growth and hit its sagging popularity, Surapong said he would not sack governor Tarisa Watanagase but warned of consequences from their disagreement.

“Policy differences won’t lead to demotion of the central bank governor. But if that difference is so wide, one policy must stay and the other must go,” he told reporters on the sidelines of an economic seminar.

The central bank raised rates last month by 25 basis points to 3.50 percent -- its first hike in two years -- and hinted at more to come after the annual inflation rate hit 9.2 percent in July, fuelled by soaring food and energy prices.

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Earlier on Friday, Surapong’s deputy, Suchart Thadathamrongvej, said bluntly that Tarisa, a 32-year Bank of Thailand veteran, should step down if she was not prepared to do what the government wanted.

“In the past, when a central bank governor disagreed with the government he resigned. This government’s policy is growth-targeting, not inflation-targeting,” he told FM 98 Business Radio.

He added that he would soon meet Tarisa, who has not made any major public comments since the monetary policy brouhaha erupted around two weeks ago.

Suchart said if Thailand got its monetary and fiscal policies “pointing in the same direction”, the economy could grow at 8 percent.

The government’s current 2008 growth forecast is 6 percent, a forecast Surapong reiterated on Friday. In 2007, the economy expanded 4.8 percent.

Surapong, who has also recently criticised the central bank’s currency policy, told the Bangkok seminar he did not expect inflation to hit double digits this year, making a further rate rise “difficult.”

However, he added that he would not pressure the central bank’s Monetary Policy Committee (MPC) ahead of its next interest rate meeting on August 27.

“We will let the MPC decide on the policy rate. But we still have the right to comment on that decision,” he said.

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