Lower rates won’t help virus-hit economy much

An area outside the Terminal 21 shopping arcade in Asoke is quiet after Bangkok is under lockdown. (Photo: Varuth Hirunyatheb)
An area outside the Terminal 21 shopping arcade in Asoke is quiet after Bangkok is under lockdown. (Photo: Varuth Hirunyatheb)

Interest rates have become less effective managing the flagging economy, with financial measures and fiscal policy currently better tools, a member of the Monetary Policy Committee (MPC) said, playing down the prospect of rate cuts.

Strict curbs to contain the Southeast Asian nation’s biggest Covid-19 outbreak have battered economic activity and the still struggling tourism sector.

Somchai Jitsuchon, a non-central banker on the seven-member rate-setting committee, said in a telephone interview that while liquidity was ample there were issues directing it to needed areas, particularly smaller firms, which could not be addressed by an “across the board” rate policy.

“Cutting (the policy rate) to zero from 0.50% or from 0.25% to zero, the benefits are not much as we know it’s already low and liquidity is not a problem,” he told Reuters.

A zero percent rate would also see legal limitations and could overly impact financial institutions, Mr Somchai said.

His comment came after earlier this month the Bank of Thailand’s MPC – which comprises three BoT officials and four external experts – voted 4-2 to keep the benchmark one-day repurchase rate at a record low of 0.50%. Two dissenters wanted a quarter point cut due to risks of an economic slowdown.

One member was absent.

It was the first split decision since a rate cut in May 2020, raising some expectations of a further rate reduction as soon as the BoT’s next meeting on Sept 29.

“Should there be a symbolic action, it’s better to accelerate the policies that have been implemented to make them more fruitful and in step with the fiscal policy,” Mr Somchai said.

Fiscal policy must play a key role in supporting the economy, which under the worst-case scenario could contract for a second straight year if the lockdown measures continue to the final quarter of the year, he said.

Mr Somchai said he backed the BoT’s recommendation that the government should borrow a further 1 trillion baht to fight the outbreak and prop up the economy, as the current 500 billion baht borrowing plan would be inadequate.

Source link

Related Articles

Leave a Reply

Stay Connected

- Advertisement -

Latest Articles

- Advertisement -