Policy Interest Rate Remains Unchanged

(28/09/2012)

The Bank of Thailand has reaffirmed its decision to keep the policy interest rate unchanged at 3 percent per annum. Governor of the Bank of Thailand, Prasarn Trairatvorakul, said that commercial banks were competing in mobilizing deposits and extending credit. The reduction in the interest rate might give a erroneous signal and affect the country’s economic system. So the policy interest rate should remain unchanged. He explained that the interest rate could be used as a major tool in maintaining economic equilibrium, in addition to the use of the current inflation-targeting framework, which would provide a degree of flexibility in implementing the monetary policy. Mr. Prasarn said that, during the past few years, Thailand had been affected by major economic crises in foreign countries, such as the subprime loan crisis in the United States and the eurozone crisis. He said that the Bank of Thailand, as the country’s central bank, had never been complacent. Instead, it is trying to develop various policies to cope with economic challenges all the times. More importantly, he said, it is the policy of the Bank of Thailand to seek a balance between economic stability and economic growth, both in the short term and in the long run. So it needs to adjust the monetary policy in line with financial and economic structures. Mr. Prasarn said that, over the past decade, Thailand’s inflation has been at a low level, while the country’s economic growth has been at a satisfactory level. This situation has enabled the country to deal effectively with the volatility of the economic situation, the fluctuation of commodity prices, and even political turmoil and recent severe floods. He stressed the need for the Bank of Thailand to operate independently under the target jointly set with the public sector. The Governor said that the Bank of Thailand had operated for 70 years now. Throughout the period, the central bank has been well recognized, and it is striving to move forward and reform its operations appropriately, in response to the evolving situation. It also needs to use various forms of financial tools to prevent and reduce risks. Mr. Prasarn pointed out that the Bank of Thailand is facing a new challenge, as it is adjusting itself in preparation for a new financial situation when ASEAN becomes a single community and production base in 2015. ASEAN financial integration is expected to facilitate intra-ASEAN trade and investment and promote greater financial stability. In the case of Thailand, he said, while the capital market is identified for liberalization by 2015, the banking sector has been granted greater flexibility, with the timeframe for liberalization extended to 2020.