BANGKOK : Interest rates have become less effective managing Thailand's flagging economy, with financial measures and fiscal policy currently better tools, a member of the central bank's monetary policy committee said, playing down the prospect of rate cuts.
Strict curbs to contain the Southeast Asian nation's biggest COVID-19 outbreak have battered economic https://www.reuters.com/article/idUSL4N2PL05N activity and the still struggling tourism sector.
Somchai Jitsuchon, a non-central banker on the seven-member https://www.bot.or.th/English/MonetaryPolicy/MonetPolicyComittee/Pages/default.aspx 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 0.50per cent or from 0.25per cent 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, 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 https://www.reuters.com/article/idUSL4N2PA3QW at a record low of 0.50per cent. Two dissenters wanted a quarter point cut due to risks of an economic slowdown https://www.reuters.com/article/idUSL1N2PP04J. 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," 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.
Somchai said he backed the BOT's recommendation that the government should borrow https://www.reuters.com/article/idUSL1N2PN0EP a further 1 trillion baht (US$30 billion) to fight the outbreak and prop up the economy, as the current 500 billion baht borrowing plan would be inadequate.
(US$1 = 33.29 baht)
(Reporting by Orathai Sriring and Satawasin Staporncharnchai; Editing by Ed Davies)