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Bangkok Bank challenges BOT move to adjust inflation target

Bangkok Bank, the country’s largest commercial bank by asset size, has taken issue with the central bank and the Finance Ministry over the move.

Bank of Thailand Governor Prasarn Trairatvorakul said the new inflation target would be ready for submission to the Finance Ministry in early October. He declined to reveal further details, but insisted that global economic risks were not discussed at Wednesday’s meeting.

The next regular meeting of the Monetary Policy Committee will be on October 19.

Bank of Thailand Deputy Governor Atchana Waiquamdee said that the new inflation target contained a “significant” change from the current target of between 0.5 per cent and 3 per cent.

She said the central bank would submit proposals on three issues requested by the Finance Ministry at the same time as it passed on its new inflation target.

Finance Minister Thirachai Phuvanatnaranubala earlier raised concerns over four issues, including the massive issuing of bills of exchange and the establishment of a sovereign wealth fund.

The sovereign wealth fund was to be discussed by the BOT’s board of directors yesterday.

On the bills-of-exchange issue, the Financial Institutions Policy Com-mittee recently agreed that proceeds from B/Es must be included in deposits, and more rules and regulations are being considered in cooperation with the Securities and Exchange Commission.

Meanwhile, Bangkok Bank executive chairman Kosit Panpiemras took issue with the need to consider adjusting inflation targeting.

He said the current core inflation rate was 2.85 per cent, which was within the target range of 0.5 per cent to 3 per cent, while headline inflation was 4 per cent. This rate of headline inflation is acceptable even though the global economy is uncertain.

“Headline inflation in 2008 was 5.5 per cent, and the BOT did not change its targeting, so the central bank and the Finance Ministry have no reason for the adjustment,” he said.

Kosit said inflation was not always linked with the policy interest rate because adjusting the policy rate was not a solution for higher inflation.

Growth in the Thai economy is in line with that in the global economy, so the country has been unable to avoid hikes in the prices of goods.

Kosit said the country should closely monitor the European debt crisis because it could spread to Thailand. Asian economic growth, including that in Thailand, can be expected to decline if the euro-zone countries cannot solve the crisis.

Next year, the Asian economy might not grow by as much as 8 to 10 per cent – as it did this year – because the region may not be supported by the European economy, as in previous years, he said.

At the meeting of the Monetary Policy Committee on October 19, the Bank of Thailand will consider the European debt crisis in its appraisal of inflation risk and the risk of global economic volatility.

Kosit said that the central bank’s policy interest rate should not be increased, because the rate of 3.5 per cent was a proper figure for Thailand.

Source: The Nation

ThaiVest Editorial Team

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