Thailand Doesn’t Need to Reduce Interest Rates, Prasarn Says

Thailand doesn’t need an interest- rate cut as credit growth is accelerating and domestic demand is countering a slowdown in exports, central bank Governor Prasarn Trairatvorakul said.

Inflation remains “benign” and Southeast Asia’s second- largest economy is estimated to grow 5.7 percent this year, Prasarn said in an interview with Bloomberg News in Tokyo yesterday. The central bank next meets to decide monetary policy on Oct. 17.

The Bank of Thailand has refrained from adding to its November and January rate reductions as the country recovered from its worst floods in almost seven decades. Prime Minister Yingluck Shinawatra has boosted state spending and raised government salaries, while demand for loans has risen.

“We don’t see necessity at the moment to use monetary policy to restore confidence because the market is already quite confident,” Prasarn said. “Exports are coming down but domestic demand is still very strong to compensate.”

Thailand’s central bank has kept its benchmark interest rate unchanged for five meetings. The one-day bond repurchase rate is at 3 percent and nine of 11 economists surveyed by Bloomberg News forecast borrowing costs will be kept unchanged on Oct. 17. Two forecast a cut of a quarter of a percentage point.

Rising Inflation

Consumer price inflation rose to a six-month high of 3.38 percent in September, a pace the central bank has said is in line with its expectations and not worrisome. Core inflation was 1.89 percent, below the 3 percent target that the monetary authority seeks to avoid breaching.

Total bank loans climbed 14.2 percent in the second quarter from a year earlier, accelerating from 13.9 percent in the previous three months.

Thai exports fell 6.95 percent in August from a year earlier, dropping for a third consecutive month as demand for products from electronics to rubber declined. The International Monetary Fund on Oct. 9 cut its projections for global expansion this year and next, saying it sees “alarmingly high” risks of a steeper slowdown.

The Bank of Thailand has room to ease monetary policy if needed, Prasarn said. He was in Tokyo to attend the IMF’s annual meeting.

“If the slowdown in the world markets curb exports to the level that Thai businesses” suffer, the central bank will act, he said.

There are no “alarming signs” of asset bubbles in Thailand, the governor said. The baht hasn’t come under “serious pressure” and the central bank hasn’t had to intervene in the currency, he said.-Bloomberg (October 14, 2012 1:01AM)