Thai Economy May Need ‘Other Tools’ as Rates Fall, Atchana Says

By Anchalee Worrachate

March 27 (Bloomberg) -- Thailand’s central bank may cut its benchmark interest rate again and is looking at other tools to aid the economy, which will probably contract this year, Deputy Governor Atchana Waiquamdee said.

“There is room for the interest rate to fall further if needed by the economy,” Atchana, who was attending the Sovereign Wealth Management Conference in London yesterday, said in an interview. “This doesn’t mean that the interest rate is our only tool to deal with the economy.”

Central banks across the world have shifted their focus to unconventional measures to bolster growth after moving benchmark borrowing costs close to zero. The Bank of Thailand cut its own interest rate on Feb. 25 to 1.5 percent to buoy demand after consumer prices declined and the economy shrank for the first time this century.

If the interest rate “falls to a certain level, and it doesn’t have to be zero, yet the transmission mechanism still doesn’t work, we have to look at other tools to make our policy more efficient,” Atchana said. “They are being studied.”

Thai central bank Governor Tarisa Watanagase also said this week that the central bank is prepared to reduce interest rates further if required. If the bank then chose to adopt alternative measures, it would join a host of counterparts including the Bank of England, which has started printing money and spending it on assets including government bonds and corporate debt.

GDP Forecast

Thailand’s finance ministry this week forecast that gross domestic product may fall as much as 3 percent this year as exports slide and unemployment climbs.

Exports, which make up 70 percent of Thailand’s economy, have fallen for four months as the global economic recession curbed demand for Thai products. The Bank of Thailand will hold the next interest rate meeting on April 8.

“There is a very slim chance that the Thai economy will grow this year,” Atchana said. “The economy may actually contract, the question is by how much. We might have a clearer picture when we get the new staff forecasts on April 8.”

The Bank of Thailand has no plan to “resist the trend” in the foreign exchange markets even after the Thai baht strengthens, said Atchana.

The baht has risen as much as 2.6 percent against the dollar since the beginning of the month. Atchana said the baht, along with regional currencies, are rising “by default” because of the weakness of the dollar.

“We have no preference for the baht to be weak or strong,” she said. “Exchange rates alone are not the only key factor driving trades, what is more important is the income of our trading partners. We monitor the baht to make sure it doesn’t overshoot or undershoot regional currencies and affect our competitiveness.”

To contact the reporter on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net.