ASEAN KEY DESTINATIONS
Thai inflation poses risks
"There was room for economic stimulus in the period after 1997 up until 2000 and onward. But the economic situation currently is different. Inflation will show up as an impact of government spending, if it is geared toward spending on expanding capacity," Prasarn Trairatvorakul, said in an address to Chulalongkorn University's Faculty of Commerce and Accountancy on Monday.
He said economic momentum remains healthy in the second half, with consumer spending power aided by rapid bank lending, high farm incomes and low unemployment. Private investment is likely to increase soon, as many industries are using almost all their capacity.
A decline in the economic growth of the US, Europe and Japan could have a limited impact.
Exporters' shares in the three markets has decreased significantly as more trade takes place within Asia. But uncertainty in the US and Europe has increased, Dr. Prasarn said.
"The US has run out of ammunition in its monetary policy. And it has to cut the budget deficit by $2.4 trillion out of $9 trillion. That is significant," he said. "In the euro zone, we must monitor if the debt crisis spreads to core economies."
Dr. Prasarn said the central bank's recent interest-rate increases had been aimed at preventing a general increase in prices, thus preserving consumer spending power. As well, higher interest rates improve the wealth of savers.
"Even if the government increases wages, the value of money could decline if inflation rises," he said.
The central bank's Monetary Policy Committee is scheduled to meet today and it is widely expected to lift the policy interest rate by a quarter point to 3.5 percent.
Discussing the government's idea of tapping official reserves for other investments, Dr Prasarn said it needed to consider how to fund it.
"The government can't just take the assets, it needs to take liabilities too. It might need to issue bonds and raise funds to swap with the reserve money," he said.
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