Thailand’s Benchmark Interest Rate Too High, Kittiratt Says

Thailand's Finance Minister Kittiratt Na-Ranong
While Kittiratt Na-Ranong, Thailand's deputy prime minister and minister of finance, said he didn’t “mind too much” about short-term gross domestic product figures, it would be “nice” for growth to come in at 4 percent this year. Photographer: Brent Lewin/Bloomberg

Thailand’s Finance Minister Kittiratt Na-Ranong said the central bank’s benchmark rate is too high, while resigning himself to lacking the power to influence it.

“I still believe that the policy rate is still too high,” Kittiratt, 55, said in an interview at his ministry in Bangkok today. “But I am not saying that because I want them to cut it,” he said. “My opinion is irrelevant because my colleagues in the Monetary Policy Committee will be very independent.”

Thailand’s finance chief said his focus is on proceeding with a 2 trillion baht ($64 billion) transport-infrastructure program, rather than on “external” dynamics such as the central bank’s policy or international developments. Kittiratt said that for now the impact of the U.S. government shutdown isn’t a concern, and that the prospect of reduced Federal Reserve stimulus is welcome, because exiting quantitative easing would mean the American economy is strengthening.

While Kittiratt said he didn’t “mind too much” about short-term gross domestic product figures, it would be “nice” for growth to come in at 4 percent this year. The baht, which was excessively strong earlier this year, is now at an appropriate level, according to the minister. “I don’t hope to see a weaker baht -- I want a stable baht.”

The baht traded at 31.24 per dollar as of 3:10 p.m. in Bangkok, up about 3 percent in the past month after the Fed decided to postpone any tapering in its monthly asset purchases -- diminishing the risk of an outflow of capital from emerging markets. Thailand’s SET Index advanced 1.4 percent, bringing its gain over the past month to 8.6 percent.

Lower Growth

The Southeast Asian nation is struggling with weak exports, slowing local demand and delayed government spending. Prime Minister Yingluck Shinawatra has tried to speed up budget disbursement and extended some subsidies after the economy slipped into a technical recession in the second quarter.

The Finance Ministry last week cut its 2013 growth forecast to 3.7 percent from 4.5 percent. It said expansion may still reach 4 percent if the government pushes through 86 billion baht in spending by the end of the year.

“Monetary policy should do the job” because fiscal policy has gone almost on a tightening path with a lower budget deficit and a lack of infrastructure spending, said Santitarn Sathirathai, a Singapore-based economist at Credit Suisse Group AG. “We still believe there is a chance the central bank may cut the rate this year. Lower rates will help stimulate local demand as we can’t see any economic catalyst now.”

Fed Exit

The central bank kept its benchmark interest rate unchanged at 2.5 percent for a second straight meeting on Aug. 21 after cutting it by a quarter of a percentage point in May to bolster growth. The next policy decision is due Oct. 16.

Emerging markets aren’t likely to see a crisis as a result of the Fed ending its QE program, said Kittiratt, who also serves as deputy prime minister. “Exchange rates will work as the most important adjustment factor” for some countries, helping manage their current-account balances, he said. India and Indonesia were among the nations that saw the biggest slide in their currencies after concern mounted in May that the U.S. would reduce injections of liquidity into the global system.

“It has to end some day,” Kittiratt said of the Fed’s QE program. “The sooner the better,” he said, because of the challenges in the rest of the world coping with resultant capital flows. “It worked,” he said of the Fed’s initiative, citing increases in American employment.

U.S. Shutdown

The shutdown of the American federal government that began this week is unlikely to hurt the global economy for now, according to Kittiratt. He said that the shutdown in 1995, when the U.S. accounted for a larger share of world output, showed that a two-to-three week impasse “shouldn’t be a serious problem.” “If this situation is prolonged, no one could say we would not suffer -- I think the whole world would suffer.”

President Barack Obama and Republican and Democrat lawmakers have been unable to agree on a budget for the U.S. fiscal year that began Oct. 1, leading to the first partial government shutdown in 17 years.

Kittiratt said he’s concentrating on what he can control, preparing to present a seven-year infrastructure program to the Thai Senate next week. The rail and road projects envisioned will boost GDP by a total of 3 percent by the end of 2020, reducing imports of fossil fuels and increasing the attraction of investing in areas of the country besides Bangkok, he said.

Infrastructure Boost

While critics including the opposition Democrat party have expressed concern about the additional debt Thailand would take on from the initiative, they fail to note that past infrastructure spending has proved key to the country’s development, the finance chief said. He cited a port on the eastern seaboard conceived during the administration of Prem Tinsulanonda, and ex-Prime Minister Thaksin Shinawatra’s decision to build Bangkok’s Suvarnabhumi airport.

Thaksin’s sister Yingluck is driving the new transport program. Kittiratt said the administration is girding for legal challenges to the legislation after its passage, and will focus on getting the projects ready in the meantime.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE