Arakan

The land that is known as Arakan by the foreigners is called Rakhaing-pray by its own people, Rakhaing-thar (Arakanese) who were titled this name in honour of preservation on their national heritage and ethics or morality.

Experts want BOT to maintain key rate to help flood-hit businesses

Posted by Arakan Indobhasa Sunday, October 16, 2011

The Nation October 17, 2011 8:00 am
Major banks and economists share the view that the Bank of Thailand (BOT) should freeze the policy interest rate at 3.5 per cent till the end of this year to help lower the financial and operating costs of businesses that have been affected by the floods.

Their comments came before the meeting of the BOT Monetary Policy Committee on Wednesday and on November 30.

The pressure on inflation continues and will be higher due to the hoarding of rice, instant noodles and bottled water by Bangkok residents.

Dr Charl Kengchon, managing director of Kasikorn Research Centre, told The Nation that the BOT should carefully consider the policy rate in this meeting because inflation, combined with the natural disaster, is a short-term phenomenon and is not a key consideration in increasing the policy rate.

The Thai economy is facing a growth slowdown due to the severe flooding, while the rate hike will not benefit growth, he said.

The house does not expect the BOT to increase the rate in the next two meetings because the severe flooding would need more time to be resolved, therefore, it is possible that the repurchase rate will remain at 3.5 per cent this year.

In case the BOT maintains the rate at 3.5 per cent, flood-affected businesses will not have to worry about higher financial costs from having to borrow additional working capital to repair damaged production plants. On the other hand, if the BOT increases the policy rate, flood-affected businesses will face a higher financial cost and the overall economic growth this year might not meet the target.

"The hike in policy rate will create worries for the industrial sector, and the central bank is well aware of it. We think the rate will be considered for a hike after the flooding problem is resolved," he said.

Charl said that the GDP this year might be lower than the target if the flood situation is not resolved quickly.

However, both GDP growth and inflation will accelerate next year from the massive spending by both private and government sectors, especially the investment on infrastructure to save industries from natural disaster.

The government must show commitment to investors in industrial zones about rebuilding infrastructure and undertaking measures to save industrial estates from floods.

He said it will not be easy for manufacturing plants to relocate to other industrial zones or move to other countries. In general, a manufacturer will not consider moving if the supply chains are not relocating. Flood-affected manufacturers are expected to stay at the same industrial estates and will quickly restart production when the situation returns to normal.

Arthid Nanthawithaya, senior executive vice president of Siam Commercial Bank (SCB), also said that the policy rate should not be increased at this time.

BOT Governor Prasarn Trairatvorakul said last week that the floods would cost the industrial sector Bt100 billion, or 1 per cent of GDP, while the agricultural sector will be hit by Bt16 billion-Bt20 billion.

The GDP forecast would be revised down to reflect the situation, he added.

Tak Bunnag, executive vice president of Bank of Ayudhya (BAY), said the central bank should maintain the repurchase rate at 3.5 per cent to ease the financial cost on flood-hit victims.

He said the central bank is still monitoring the impact of the European debt crisis on the Thai economy, but the flooding is unlikely to be resolved soon. Internal and external factors would pressure the central bank's decision on the policy rate.

Apisak Tantivorawong, president of Krung Thai Bank (KTB), said the BOT would consider the growth of the economy and inflation as key factors in deciding the policy rate. Inflation currently is not high, and the Thai economy has been affected by both the flooding and the global economy.

Therefore, the timing is not appropriate for raising the policy rate, he said.

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