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No conflicts with central bank


August 22, 2008

Thai Finance Ministry: No conflicts with central bank
Thailand’s Finance Ministry said on Thursday it would let the central bank work independently.

Reuters quoted Suchart Thadathamrongvej, a deputy finance minister, as telling reporters the government had no conflict with the Bank of Thailand (BoT), only differing views, and that they could work together to tackle decade-high inflation.

The ministry has markedly toned down its rhetoric in a spat about interest rates after the bank received backing from King Bhumibol Adulyadej.

Only two weeks ago, Suchart was calling for BoT Governor Tarisa Watanagase to step down if she was not prepared to do what the government wanted.

"We have mutual targets. Every agency is independent in using its own tools to meet the targets. So there will not be any argument any more," Suchart said, without going into details.

"Our policy is growth-targeting but subject to stability," Suchart said. The government is aiming for 6 percent growth this year after 4.8 percent last year.

His comments came a day after the revered monarch praised Tarisa for her efforts in maintaining monetary stability in the face of government criticism of her desire to raise rates to tame inflation.

The spat between the government and bank has raised concerns about the latter's independence ahead of a rate-setting policy meeting on August 27.

The government fears higher interest rates will crimp short-term growth and further reduce its popularity, while the central bank wants to focus on price stability to ensure long-term growth.

However, the support from the revered king is seen by analysts as a moral boost for the central bank governor.

"That would indicate the BoT will indeed feel confident enough to deliver more rate hikes," Swedish banking group SEB said in a research note.

The central bank raised interest rates by 25 basis points to 3.5 percent last month, its first rise in two years, to fight inflation running at a 10-year high of 9.2 percent in July.

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