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Kittiratt pushes for policy rate cut

Deputy Prime Minister Kittiratt Na-Ranong yesterday put more pressure on the Bank of Thailand, supporting the finance minister’s view that the policy interest rate should be cut by between a quarter and one percentage point.

Mr Kittiratt, who is also the commerce minister, echoed the view of Thirachai Phuvanatnaranubala that the central bank’s core inflation target is a constraint on economic development, as it pushes up local interest rates too high compared with global markets.

However, he prefers to see the rate lowered gradually.

Mr Thirachai first raised the issue on Monday, when he criticised the central bank’s inflation targeting policy as too stringent and also questioned whether the downside had been considered.

He said he would consult the central bank about raising the present core inflation target.

Prasarn Trairatvorakul, the Bank of Thailand governor, said yesterday that he expected to settle on a new inflation target with the Finance Ministry.

The central bank has used core inflation, which excludes energy and raw food prices, as the key factor in its monetary policy decisions since 2000. It is required to revise the target and submit it for cabinet approval each December.

The existing target of 0.5% to 3% for core inflation has been in use since 2009.

The Monetary Policy Committee (MPC) will decide whether to continue that target next year and will meet with the ministry on the issue, said Dr Prasarn.

”The central bank expects appropriate discussions with the ministry,” he said. ”Nonetheless, we are highly regarded in the region for our ability to control inflation. The MPC has earned its credibility.”

Dr Prasarn expects the central bank and the ministry will be able to settle on a target that is in the country’s best interest.

The MPC has increased the benchmark interest rate by two full percentage points since July 2010 to 3.25%.

During a review of its forecasts last month, it maintained its forecast for an average headline inflation rate of 3.9% for this year but raised core inflation to 2.4% from 2.3%, pending assessment of the new government’s economic policies.

The January issue of the central bank’s Inflation Report said developing economies’ inflation targets stood at an average of 3.2%, compared with 1.7% for developed economies.

However, the International Monetary Fund expects an inflation rate of 4% in developing countries over the next four years.

Source: Bangkok Post

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