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Thailand: Central bank gets new board


July 30, 2008

Thailand: Central bank gets new board
Thailand’s cabinet appointed a new Bank of Thailand board on Tuesday that may lead to a watering down of the central bank's efforts to rein in inflation, Reuters quoted analysts as saying.

The new, 12-member Bank of Thailand (BoT) board, empowered to change the composition of the BoT's Monetary Policy Committee (MPC), includes six new appointees favoured by Finance Minister Surapong Suebwonglee, who disagreed with a recent BoT decision to raise interest rates.

The pro-government appointees include a retired assistant central bank governor but also national police chief General Pacharawat Wongsuwan, current and former senior finance ministry officials, and a top prosecutor.

"The new appointees are people not particularly noted for their monetary expertise, a quality one would expect from people sitting on the BoT board," Associate Professor Lae Dilokvidhyarat of Bangkok's Chulalongkorn University said.

Under an amended Bank of Thailand Act, the board is now chaired by someone from outside the central bank rather than by its governor as in the past.

The new board is headed by Pornchai Nujsuwan, a former head of the Budget Bureau and once an adviser to former Prime Minister Thaksin Shinawatra, who was ousted in a coup in 2006 and whose allies are now back in power.

"Their backgrounds raise the question of whether the central bank would in future become an agency more responsive to government pro-growth policy," he said.

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The new board also has the authority to change the BoT governor, a prerogative previously held by the finance minister and the cabinet.

Governor Tarisa Watanagase, who has in recent months put priority on fighting inflation rather than supporting economic growth, is due to retire in just over a year but there are persistent rumours the government wants her to go sooner.

The MPC raised its policy rate by 25 basis points in mid-July to fight inflation, which hit a 10-year high of 8.9 percent in June.

Most analysts expect the central bank to raise the rate by another 25 basis points at its next meeting in late August.

The BoT forecast on Monday that inflation would average 7.5-8.8 percent this year, up from the 4.0-5.0 percent expected in April and just 2.3 percent in 2007.

Economist Nuchjarin Panarode of Capital Nomura Securities said she did not expect any short-term market reaction to the appointments.

Even so, Varakorn Samakoses of Bangkok's Dhurakij Pundit University, was concerned about the longer-term implications.

"The new board members seem to have less monetary knowledge than their predecessors," he said.

"Their appointments are not much in line with the original spirit of amending the BoT Act, which is supposed to make the central bank more independent on monetary policy and less prone to government interference."

At a business seminar in Bangkok on Wednesday, Thailand's Finance Minister Surapong Suebwonglee said the central bank’s baht management policy has failed to keep the currency stable relative to Asian counterparts.

Surapong attributed the baht's instability largely to increased volatility of foreign capital flows, which he said required more efficient currency management. He did not directly criticise the performance of the central bank.

Surapong is one of Thaksin's most trusted aides.

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