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Central bank insists on free hand
Bangkok Post – 8 August 2008
PARISTA YUTHAMANOP
The Bank of Thailand must have independence in conducting monetary policy, according to deputy governor Atchana Waiquamdee. She reaffirmed that the central bank's focus was on stabilising prices rather than economic growth.
Dr Atchana's remarks came amid a growing conflict over policy between the central bank and the Finance Ministry. Virabongsa Ramangura, a former finance minister who this week was named chairman of a new economic advisory team to Prime Minister Samak Sundaravej, has been a vocal critic of the central bank's moves to raise interest rates to curb inflation.
In the central bank's view, the overall economy remains relatively strong, with inflation the most critical problem. Dr Atchana said domestic consumption remained strong thanks to robust export growth, although private investment remained weak due to a lack of confidence in political stability.
''The only economic problem right now is high inflation. Domestic inflation is not higher than in other countries, but rising expectations could make the situation even worse than it actually is,'' she said.
The economy could risk losing its competitiveness in the long term if the central bank allowed inflation to stay high for an extended period, she said.
The Bank of Thailand Act calls for the central bank to report its monetary policy target and performance to the cabinet.
Dr Atchana said high oil prices were a negative factor for domestic consumption growth, and the government's recent measures to help consumers would not improve the outlook significantly.
Even if the central bank lowered its key interest rate, confidence might not improve, she said. The central bank's moves in the money market generally require one to two years before their effects begin to sink into the economy, she added.
Private investment slowed to 4% in the second quarter from 7% in the first. The central bank expects growth of 4.8-5.8% in 2008.
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