The unremunerated reserve requirement is the biggest issue threatening the central bank chief's position, followed by the latest request to commercial banks to adjust their net foreign positions.

Politicians, who see strong reasons to sack her at the moment, might use the MPC decision on policy interest-rate reduction as an excuse.

Finance Minister Chalongphob Sussangkarn's commitment to give the BOT a free hand to run its monetary policy cannot safeguard the governor's position. As an economist, Chalongphob can understand the differing views of other economists within reason, but that may not be the case with non-economists, who are unlikely to see reason in policy decisions eroding their wealth.

MR Chatu Mongol Sonakul was fired as central-bank governor during Thaksin Shinawatra's first stint as premier. He was accused of not satisfying the government's need to cut the policy rate as the BOT was too concerned with inflationary pressure, especially as the inflation-targeting framework had just been adopted at that time.

The Finance Ministry and economists have put tremendous pressure on the central bank to cut the key rate by 0.5-1 per cent, saying the fragile state of the economy needs a boost while inflation is falling. The big cut in interest rate is believed to be the once-and-for-all medicine for the baht's appreciation.

The prospect of a 50-basis-point cut in the key policy rate now looms, following the sharp rise in oil prices again following new tensions in the Middle East, between Iran and Britain.

The BOT, which once strongly confirmed its stance to focus mainly on the inflation-targeting framework, last week ignited market hopes by signalling that a 50-basis-point cut made sense if economic growth was lower than expected, as inflation was under control.

The central bank is more optimistic that oil prices will remain at last year's level while sluggish consumption will not accelerate inflation.

This hints at the possibility of a half-percentage-point rate cut, but the decision would not guarantee Tarisa her post, especially if politicians cite the rate cut as not enough.

The BOT could be blamed for giving a vaccine overdose by introducing the capital-reserve requirement with the aim of weakening the baht. Although the stock market crashed one day after the bitter measure was prescribed on December 18 last year, and the bond market has been in high volatility, the one-way baht appreciation at least has ceased as seen by the fact that the currency has appreciated only slightly since the beginning of this year.

The baht now moves in a range of Bt34.80-Bt35 to the US dollar, compared with Bt35.46 at the beginning of this year.

The central bank realises that it underestimated the market's reaction and the extent of the negative impact of the measure, so it has tried to meet the market's needs as much as possible.

When baht speculation by two Thai banks was discovered, the BOT asked the Thai Bankers' Association to tell its members to report foreign-exchange positions on a daily basis, paving the way for banks to check one another. Unfortunately, the message sent to banks was unclear, resulting in baht volatility and the rumour of a change in currency regime.

The BOT was blamed for its poor communication when commercial banks could not understand the message and not all the banks got the request for net-position adjustment at the same time. This disadvantaged banks which received the information late.

Actually, the BOT wanted to stop the baht speculation of the two Thai banks, accused of selling dollars largely on the same day as exporters' US dollar sell-off, which caused the baht to strengthen rapidly.

No one had expected any Thai entity to speculate on the home currency, especially after foreign speculators had been prohibited to do so. The BOT's secretive and quiet action has led to it become the scapegoat as the names of the two banks have not been divulged.

Tarisa may have let the two banks escape from the scandal, but will she herself become a scapegoat?

Anoma Srisukkasem

The Nation