Hike rates

Bank of Thailand should raise rates urgently: Korn

Korn Chatikavanij, former finance minister and Kla party leader (photo from Bangkok Post)

According to Korn Chatikavanij, former finance minister, the Bank of Thailand (BoT) should urgently raise interest rates to avoid another surge in inflation and ease the burden on low-income groups already reeling from the crisis. rising cost of living.

The BoT should call an emergency meeting of its monetary policy committee to raise its benchmark rate by a record 0.5% to close the gap with U.S. rates, said Korn, who has served as the country’s finance minister for three years until 2011. The rate differential, the highest in the region, will help stem baht losses and limit the threat of imported inflation, he said.

The Monetary Policy Committee left the key rate unchanged for a 16th straight meeting in a split decision earlier this month despite inflation at a 14-year high. But a 75 basis point hike by the US Federal Reserve last week and growing consensus for a similarly large hike next month would widen the yield gap if Thailand did not move, Mr Korn said.

The former finance chief said raising rates at an off-cycle meeting would be a “more psychological” decision than a scientific one. “If the market thinks you are serious and ready to act, it will adjust” its inflation expectations, he said.

The BoT may need to raise the rate by 50 basis points this year, or “even more aggressively than that,” depending on the Federal Reserve’s next move, Korn said.

The BoT rates panel is not expected to meet until August 10, and the central bank recently ruled out an emergency meeting, saying it would only take place in “exceptional circumstances” and if unexpected developments threatened his political goals.

Headline inflation in Thailand has remained well above the official target range this year, reaching 7.1% in May, the highest since 2008. The BoT raised its average CPI forecast for this year to 6, 2%, citing rising fuel and food prices resulting from supply. – the disruptions to the channel caused by the war in Ukraine.

“Stronger Medicine”

“With inflation, it’s low-income people who are hit the hardest, so you have to tackle inflation first because it hits more people,” said Korn, who also fought inflation. high inflation as finance minister. “Cost inflation means it will be much harder to fight it later. You will be using stronger drugs than you would with obvious repercussions or collateral damage you would like to see.

Thailand, a net oil importer, is struggling to control retail fuel prices after racking up a nearly 100 billion baht bill to subsidize diesel and cooking gas prices. With the value of oil imports to gross domestic product at over 10% for Southeast Asia’s second-largest economy, a weak currency will continue to fuel inflation, he said.

BoT Governor Sethaput Suthiwartnarueput also argued that an earlier increase in the policy rate could avoid sharp increases in the future. Delaying the normalization of monetary policy amid elevated inflationary pressures could lead to “higher costs” to the economy, according to the minutes of the rate panel meeting released Wednesday.

Mr Korn, who was the first to propose capping oil companies’ refining margins to keep retail prices low, said the government should legalize any attempt to collect a share of profits rather than simply seek cooperation voluntary for a limited period.

“The whole grantmaking strategy needs to be overhauled,” Korn said. “How can fuel prices at the pump be the cheapest in ASEAN” if you import around 89% of your crude oil needs, he said.