BOT maintains interest rates at 3,75 %

The Bank of Thailand (BoT)’s Monetary Policy Committee (MPC) meeting on Wednesday resolved to maintain the one-day bond repurchase rate at 3.75 percent per year.
BoT is scheduled to revise the country’s gross domestic product (GDP) due to changes in economic and political factors, and the central bank will announce the result on October 17.
(Bangkok Post)

I’m not a fan of the lower interest rates policy, because basically in the current situation it can’t solve nothing. However, this decision is a little bit surprising. The trend is clearly to a cut. Australia did it tuesday (by 100 basis points !). And yesterday, in a coordinated move, the FED, ECB and BOE (among others) decided to cut by 50 basis points (followed thursday morning by Taiwan, South Korea and Hong-Kong).

It’s their last bullet…

End of august, the BOT raised interest rates from 3,50 to 3,75 % (like in july). I think they couldn’t lower today due to the risk to appear powerless. And inconsequent. Other local factors could play : the BOT willing to appear independant from the gvt, the artificial fall of the inflation rate, and the will to keep THB attractive because the political crisis could boost money outflows from Thailand.

And anyway we should not forget that real interest rates are still negative (chart here).

It’s like a mirror of the sudden and striking turnaround we have experienced during the last weeks. I mean during the summer, everything was perfect in the US (“the banking system is sound“, “the economy is resilient“).

And one month after, it’s the end of the world… πŸ˜‰

The fog of war has dissipated : it was nothing more than a huge lie, a fiction. A political fiction.

The truth is today : no one, and particularily the central banks, is in control

This is why the panic starts to spread…

It’s interesting to see that the price of money continues to go up in asian countries, even after the interest rates cuts…

Asian money market rates rose as banks remained reluctant to lend even after South Korea, Taiwan, Hong Kong and China lowered borrowing costs, while Japan and Australia pumped more than $42 billion into the financial system.

Interest-rate cuts will be of little help in the near term because the issue is trust, not rates“. (Bloomberg)

10 Responses to “BOT maintains interest rates at 3,75 %”

  1. 1 chinesethai 9 October 2008 at 1:36 am

    Rate cuts are just a psychological measure to stem panic.

    I would like to quote what Mr.Paulson had so energetically taught China and the rest of Asia throughout his tenure. “An open, competitive, and liberalised financial market can effectively allocate scarce resources in a manner that promotes stability and prosperity far better than governmental intervention”

    Luckily China and most of Asia did not heed that toxic advice. Amazingly, a risk-averse western economy like Canada did not either.

    The crisis is opening another opportunity to those who were always blamed for being risk-averse, self-sufficient and hostile to free market idealism.

  2. 2 ThaiCrisis 9 October 2008 at 1:48 am

    Watch out… don’t think that Asia is “insulated” from the current crazyness : China (and Japan) is really willing to play this (stupid) game.
    They followed the other CB yesterday.

    Japan : how can we qualify the inane monetary policy of Japan since 10 years ? Free money. Yen carry trade. Borrow unlimited amounts at 0,2 % in Japan… convert in Australian Dollars at 6 %. Voila. You were rich with just 2 fax sent (borrow and convert).
    Is that serious ? Japan was a major liquidities pump for many years, for the whole world. A weapon of mass financial destruction.

    China : the big cheater. The name of the game was for several years : let’s cheat with my currency exchange rate so I can get more from every USD I win from exports. Let’s pump, inject massive amounts… Go forward or die. 10 % growth per year (official)… thousands of buildings in Shangai. The empire of cranes.

    I don’t see here an “open markets” attitude… just the good old asian way to do business : respect the rules… when they suit you… Cheat with them if you need to.

    Asia can’t escape the fallouts of the global financial inanity. We are just too interlinked.

    The menu du jour is : recession for everyone.

  3. 3 MSB 9 October 2008 at 2:57 am

    The BOT missed an excellent opportunity to be ahead of the curve but decided in its wisdom to hold rates unchanged at
    3.75%. This on the same day the worlds central banks took drastic action in a coordinated rate cut.

    This was despite the wording in the accompanying MPC statement “Risks to economic growth would increase” and “Risks to inflation declined significantly”.

    Call me old fashioned but economics 101 tells you that if growth is falling and inflation is not a threat then cut rates.

  4. 4 ThaiCrisis 9 October 2008 at 3:15 am

    Indeed, It’s a little bit strange.

    There might be 2 very local factors :

    -politics : we all know that the gvt wants to furiously lower interest rates… There was and there is a fight between the weak gvt and a stronger BOT willing to affirm its power and authority.

    -… and of course the “6 months feel good” policy from the gvt with tax cuts on diesel, free water, electricity etc.
    As I’ve demonstrated here, this policy has artificially depressed the CPI. Meanwhile, the PPI remains very high. So maybe the BOT wanted to be cautious.

  5. 5 MSB 9 October 2008 at 8:21 am

    Nar she is just not a capable leader. Its obvious they want to see what the consensus view is before they act. Consensus this time was to hold but cut next meeting so thats what she will do…

  6. 6 ThaiCrisis 9 October 2008 at 9:29 am

    I agree with you. That’s the most probable outcome.

    And for cheap, she can have her little victory over the gvt and the intense satisfaction to see the new Finance Minister becoming really upset (Suchart criticized her when he was deputy finance minister in Samak’s gvt).

  7. 7 Hoktula 9 October 2008 at 12:39 pm

    ThaiCrisis, you said in the main post:

    “It’s interesting to see that the price of money
    continues to go up in asian countries,”

    I think that it only reflects the truth about dollar losing its value more and more. which is not a big secret for anyone anymore.

  8. 8 fall 9 October 2008 at 1:17 pm

    The interest rate cut, in theory, should stir demand and increase private sector investment. But in reality, when more than half your economy based on export and there is a freaking blood on the street(stability); interest rate neither really induce enough demand nor investment.

    I would say with current global and domestic economy in the down. Government spending is a more preferable measure.

  9. 9 Patiwat 10 October 2008 at 2:09 am

    Yet, the real problem is banks can create money out of thin air without a INDEPENDENT governing body.

  10. 10 ThaiCrisis 10 October 2008 at 3:26 am

    -Fall. You’re right : the theory doesn’t apply anymore.
    The “greenspan put” is now naked. and people start to understand it better : it was only gambling and a pathetic ponzzi scheme.

    Now, back to basics… and they aren’t pretty.

    As for the gvt spendings… you forget something : the vault is empty. πŸ˜‰

    I wrote dozen of times that the “mega projects” were a red herring… A running joke. But all the cheerleaders and the lovers of the boiler room were extactic about it… Do you remember the JBIC that was supposed to finance (a very small part of) the mega-projects ?

    Funny, we don’t hear about them anymore…

    And now :
    The Finance Ministry will seek up to $1.5 billion in loans from the World Bank and Asian Development Bank to boost domestic liquidity and finance the government’s megaprojects.

    Finance Minister Suchart Thada-Thamrongvech said the ministry would seek $1 billion in loans from the ADB and $500 million from the World Bank at the annual meetings of the World Bank and International Monetary Fund to be held in Washington next week.

    Next, he will go to see Bill Gates and Buffet. Or mother Theresa.

    By the way, you’ll notice that the money is not only for mega-projects anymore… but also to “boost domestic liquidity“.

    So much for the “recovery” and the “5 % of growth” this year.


    Who can seriously believe that in the current situation (global credit crunch and political fire at home), anyone would agree to lend money to the thai gvt ?

    The Rabbit in Wonderland, maybe. But I’m not even sure that he’s solvent.

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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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