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Thai central bank: Inflation the biggest problem


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Thai central bank: Inflation the biggest problem
The Bank of Thailand’s deputy governor on Wednesday emphasised that the biggest problem with the current economic situation is inflation and the central bank is concentrating on monetary stability rather than promoting economic growth, said Reuters.

Reuters quoted the BoT’s deputy governor Atchana Waiquamdee as saying during an economic seminar, “The biggest problem with the economy today is inflation, not economic growth… We must seek to prevent inflation from staying at high levels over protracted periods.”

The central bank raised interest rates in July to tackle oil-fuelled inflation, which hit a 10-year high of 9.2 percent that month.

But government ministers have voiced concern that tighter monetary policy could hamper growth, and a senior government adviser meanwhile said on Wednesday he was against pursuing one monetary target at the expense of other broad economic goals.

“We normally mention inflation, economic growth and external stability when we talk about the economy. Any policy management focusing exclusively on one target is not feasible,” chief economic adviser Virabongsa Ramangkura said.

“We must try to achieve at the same time these three to four targets as we go along.”
Thailand should aim to achieve annual economic growth of at least 5 percent and keep inflation in a 2-5 percent range, he said.

“A broad principle for inflation is it should be less than 5 percent but not lower than 2 percent. Inflation lower than this level may induce a negative deflation psychology,” he said.

Virabongsa, a former finance minister, has criticised the central bank’s decision last month to raise its policy rate by 25 basis points to 3.50 percent, its first increase in two years, saying it could impede economic growth.

“Statistics from this country in the past two or three decades show that annual economic growth could create problems if it is less than 5 percent. If it is over 5 percent, then it is okay,” he said.

The central bank expects inflation to average at 7.5-8.8 percent this year, sharply up from 2.3 percent in 2007, while growth is seen at least matching last year’s 4.8 percent.

Deputy governor Atchana said raising rates to fight inflation would help the economy in the long term, while short-term growth could be promoted through reviving consumer confidence.

Consumer sentiment fell for the third straight month in June, eroded by inflation and political uncertainty, according to a widely followed independent survey by a Thai university.

Government chief adviser Virabongsa suggested the blunt instrument of interest rate rises should be used carefully.

“Monetary policy can be likened to modern medicines that tend to produce quicker results but with some side-effects, while fiscal measures are like traditional Thai drugs that take time to show results but with the benefit of few side-effects,” he said.

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