A very interesting piece published by Nation, that illustrates the inanity of the policies conducted currently. Some quotes.
Deputy Finance Minister Suchat Tadatamrongvej has called on the Bank of Thailand to increase money supply to counter a lack of liquidity.
Previous central bank bond issuance had also reduced liquidity, he argued. These factors have caused commercial banks to raise both deposit and lending rates in order to mobilise more funds, he said. Commercial banks’ lending rates are currently about 7 to 8 per cent and deposit rates are about 4 per cent.
“Money supply is another big issue that the Finance Ministry and the Bank of Thailand need to discuss at length,” he said. The central bank might have previously issued too much in bonds, worth Bt1.5 trillion, so it withdrew significant liquidity, Suchat said.
This is true : in 2006-2007, the BOT was pursuing a dangerous policy : curb the increase of THB versus USD. The aim was to save the Private Exports.
We have had capital controls (december 2006), etc. The BOT was buying mountains of USD (exchanging them against THB)… that were loosing value every month (the dollar was crashing). The international currency reserves exploded, look at the chart…
And then, to avoid inflation, the Bank had to mop up those liquidities by issuing very large amounts of bonds.
Suchat has continued to oppose the central bank’s policy of using interest rates to fight inflation and encourage greater savings. The bank recently raised its one day repurchase rate by 25 basis points to 3.75 per cent.
If Thailand were like Vietnam, where demand is high, the interest rate should be raised, he said – but demand in Thailand is still weak.
Wrong. The demand is lower than in China (of course), but still strong : houses, condos, cars, gasoline consumption etc.
And furthermore, the government does everything to support and increase the demand (tax cuts, budget deficit, and many other “boost” and “stimulus” goodies).
“We should follow Japan and China, implementing low interest rates and a weak exchangerate policy,” Suchat suggested.
A weak currency would boost exports as Thai goods are relatively cheap compared with those competitors, he said.
Voila. At least, they’re honest. They want to match the foolish policies of China and Japan !
As for exports, it’s a non sense. Thai exports have never been so high !
So to summarize, those bureaucrats and politicians just want to add fuel onto the fire, for obvious and short term political gains. They have only one obsession : more.
Low interest rates, weak currency and money supply… are the 3 fastest ways to get an explosion of inflation (which is already high) and creation of bubbles.
They are running against the stream : the future is frugality.