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Bank of Thailand’s Virabongsa Says Inflation Target Ineffective

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Aug. 8 (Bloomberg) -- Bank of Thailand Chairman Virabongsa Ramangkura comments on inflation targeting. He made the remarks during a speech late yesterday in Bangkok.

Thailand’s central bank has used inflation targets since 2000 and aims to keep core inflation, which excludes fresh food and fuel prices, between 0.5 percent and 3 percent.

“Central banks should change their ideas. Inflation targeting is no longer effective because inflation has been globalized. The world is more open and we are a member of the World Trade Organization. Commodity prices are driven by global supply and demand, not policy of a particular country.

‘‘So monetary policy shouldn’t be used to deal with inflation because we can’t do anything. Monetary policy should be used to support economic growth and reduce unemployment, which we call inclusive growth.”

“The source of instability for emerging countries is foreign exchange, not inflation. The stability of the foreign exchange rate depends on capital movements. If our interest rates are higher than dollar rates, that will open a loophole for attackers. This creates financial instability. So, monetary policy should take care of this, not inflation.”

Virabongsa says his views run counter to those of Governor Prasarn Trairatvorakul.

“Still, we can work together,” he said. “I already sold this idea to the governor, but he hasn’t respond yet.”

To contact the reporters on this story: Suttinee Yuvejwattana in Bangkok at suttinee1@bloomberg.net;

To contact the editor responsible for this story: Tony Jordan at tjordan3@bloomberg.net

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