Inflation : the BOT discovers that water is liquid (and other basic principles)

Bank of Thailand Governor Tarisa Watanagase on Friday voiced concerns regarding declining returns on savings and faster spending –rather than saving — by consumers who in anticipation of higher inflation are buying now, stating that such action can push inflation to the double-digit level this year.

Psychologically, if people think that the inflation rate will increase sharply, they will accelerate their spending. So, it is likely the inflation will surge to a double-digit level this year,” she said.

Sure it’s a factor. But a factor when the stage is… hyperinflation (way beyond 6 %).

Currently, we have more real factors : inflation of costs (oil, raw materials), the stupid “boost GDP policy” and other “stimulus packages” of the government, the exchange rate issue (THB-USD), the wages issue etc.

But Miss Tarissa, like the famous chinese word, (“the Finger is not the Moon”) prefers obviously to look at the finger… It’s more convenient, and it allows her to escape her own powerlessness.

Regarding a proposed reduction of the policy interest rate to stimulate the economy, she said such an action is impossible because the interest cut would boost the spending and so fuel the inflation rise.

Reducing interest will encourage spending, which leads to a higher inflation rate. So, we can see almost all countries instead opting to raise interest rates,” she said.

Impressive. A perfect copycat of books. Well done.

So let’s follow the logic : the BOT wants to fight inflation… reduce rates would lead to more inflation… so why the BOT doesn’t INCREASE interest rate ? Now ?

During the last monetary policy meeting, they’ve decided, once again, to hold at 3,25 % (read here) 😉

And by the way, on january 30, she said : the BOT is “ready to count on using applied interest policy to stimulate the Thai economy now expected to be affected by the looming possibility of a United States economic recession and a consequent slowdown in Thai exports.” !

[That’s the problem with Internet : your statements always come back to haunt you ;-)]

“In the United States, the Federal Reserve had previously cut key interest rates in a bid to stimulate the ailing economy, which was almost in recession at that time. Now, it begins to see a need to consider the interest hike to rein in higher inflationary pressures.

Again… a perfect example. The central banks need to put actions on top of their words… To say “oh la la i’m not happy, inflation is too high, watch out I’m going to think maybe to start to increase interest rates, perhaps” (exactly like did Bernanke recently and Trichet since a few months already) is not enough.

Show us the money, bankers, and dare to increase your rates !

They won’t.

They won’t because they can’t, it would worsen the economic crisis.

What they could do would be a mere and symbolic +0,25 point (let’s not forget that, actually, the thai banks HAVE ALREADY increased their lending rates ! read here).

Mrs. Tarisa said the central bank is a sole agency responsible to oversee inflation. Accordingly, the bank must do its best to control inflation to boost consumer confidence. Otherwise, the inflation will surge incessantly. (TNA)

Totally stupid. The BOT can’t be alone to solve the problem. The government is a key too. The government has a large responsability in the current situation with its idiotic policies.

Inflation is not just related to monetary policy.

[by the way… “Foreclosures Rose 48% in May as U.S. Bank Repossessions More Than Doubled“… now you know why the hawk rethoric of Bernanke is nothing but a marshmallow… The FED is cornered]

5 Responses to “Inflation : the BOT discovers that water is liquid (and other basic principles)”

  1. 1 Gloomy Observer 14 June 2008 at 3:33 am

    I agree the BoT are like a rabbit caught in the headlights of an oncoming vehicle; but then all they ever do is follow the Fed – who are in the same position!

    Seriously, since when did a Thai central banker have to make tough decisions? Open the paper, see what the Fed did, do the same, then go and have some som tam (or an expensive Italian meal).

  2. 2 Beetle Juice 14 June 2008 at 5:51 am

    I don’t think there’s anything strange about What Dr. Tarisa said, it’s true that if you lower rates you raise inflation. However Thailand having an effective stimulating economic policy is another matter. Likely they will find a way to make the problem much worse than blame Farangs.

  3. 3 thaicrisis 14 June 2008 at 6:58 am

    Beetle Juice, I think you didn’t get… my irony. 😉

    I’ve pointed out that the BOT is moving its lips… and doing something else with its hands.

    Tarissa repeats, like a good student, the “rules” (low, high interest rates, and link with inflation)… perfect… good score.

    But the problem is, behind the teacher’s back, she’s doing something totally different (she supports the “stimulus plans” of the gvt, a policy of “everything for GDP”, interest rates on hold since july 2007, look my chart here :

  4. 4 thaicrisis 14 June 2008 at 7:02 am

    I would like to add that on january 30, the BOT said : “the bank was ready to count on using applied interest policy to stimulate the Thai economy now expected to be affected by the looming possibility of a United States economic recession and a consequent slowdown in Thai exports.”

    And end of january, the inflation was already there, the pressure was mounting, the oil prices, the businesses with margins under pressure etc.

    So you see : 30 january “let’s decrease rates to boost”… 5 months after it’s : “oh la la Houston, we’ve got a problem, we might increase interest rates”.

    It’s the “wet finger” policy. 😉

  5. 5 Beetle Juice 14 June 2008 at 5:00 pm

    Ok I see your point now. 555

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Thailand Crisis

Coup, Economic slowdown, Terror In the South... The situation is worsening in Thailand. Bumpy road like often before.

But this time, it's different.

The key to understand the present turmoil is the inevitable... succession of King Bhumibol.

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