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Suchart renews call for rate cut
Banks using funds to invest and not to lend
Bangkok Post – 6 November 2008
WICHIT CHANTANUSORNSIRI
Finance Minister Suchart Thada-Thamrongvech repeated his calls yesterday for the Bank of Thailand to cut interest rates to help boost liquidity in the economy.
He said the central bank's one-day repurchase rate _ now set at 3.75% _ was significantly higher than deposit rates of just 0.75%.
The relatively wide spread was encouraging banks to mobilise their deposits for investment in the short-term money market rather than for lending to borrowers, creating liquidity problems for the system.
Dr Suchart, speaking at an economics seminar organised by Than Setthakij newspaper yesterday, said the government was increasing its fiscal spending to help maintain growth in light of the slowing global economy.
Authorities this week approved a supplemental 100-billion-baht spending programme for the current fiscal year to finance new job programmes, community development grants and public investment projects. The extra funds will increase expenditure under the current budget to 1.935 trillion baht, with a projected fiscal deficit of 349 billion.
But Dr Suchart said the budget increase could hardly compensate for the impact of slowing exports on the economy.
''Frankly, another 100 billion baht isn't enough, if you consider the loss of revenues from seeing export growth in dollar terms drop from 25% this year to, say, 10% in 2009,'' he said.
''The amount of money potentially lost is huge. But this is all we can do.''
Details of the new spending programmes will be reviewed by the cabinet on Nov 18.
Dr Suchart also expressed concern that private businesses were increasingly facing difficulty in accessing credit as banks become more defensive in lending due to the slowing economy.
''Someone actually sent me a copy of a letter they received from their bank, asking for confirmation that the bank reserves the right to cut overdraft lines if the borrower begins to have problems,'' he said.
Dr Suchart urged the central bank to review its open market operations to help pump greater liquidity into the banking system and urged banks to lend.
The central bank, he said, has sold around 450 billion baht worth of debt instruments this year, effectively removing funds from the system.
The Bank of Thailand sells bonds in the market as part of its mandate to manage overall liquidity. Over the last few years regulators have issued debt instruments worth hundreds of billions of baht into the market to absorb excess liquidity to help stabilise the baht.
Most analysts agree that declining inflation and the gloomier outlook for economic growth will prompt the central bank to cut interest rates at the next Monetary Policy Committee meeting on Dec 3.
Inflation fell to a 10-month low in October at 3.9% year-on-year due to declines in food and energy prices.
Dr Suchart added that he would consider cutting tax rates to further stimulate growth, but declined to offer any firm commitments.
''If one day our country is wealthier, then we can then afford to, say, cut capital gains taxes for the capital market,'' he said.
Another proposal floated by the private sector of allowing foreigners to purchase up to 100% of a condominium project (up from 49% now) is also under review.
''Various agencies must study the issue. But, personally, I don't think that [raising the ceiling] will hurt. Regardless, the asset remains in Thailand,'' said Dr Suchart.
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