Concern that low rates hit savings

Thai Chamber of Commerce vice chairman Chatchai Boonyarat said the BOT was worried that the present real interest rate would encourage the household sector to spend on a variety of assets, such as condominiums, instead of saving. Such behaviour would bring about asset-price problems.

The central bank is also concerned that high inflation, which raises productions costs, will cause increases in export prices.

"If the household sector does not save, but spends instead, inflation will continue," said Chatchai.

The BOT yesterday held discussions with the Thai Chamber of Commerce, the Federation of Thai Industries, the Thai Gold Card Importer and Exporter Association and the Association of Thai Travel Agents about the macroeconomic picture, interest rates, exchange rates and other topics.

In April, the real interest rate was in negative territory of 4.54 per cent, due to high inflation and a low deposit interest rate. The BOT realised that inflation should be closely monitored to prevent any psychological effects resulting from inflation expectations.

Thai Chamber of Commerce secretary-general Phairush Burapachaisri said the interest-rate policy should be relevant to the actual economic picture, or else distortion would occur.

"If the interest rate is too low, people will not save, but rather spend their money," he said.

After other large banks led the move to increase interest rates over the past few days, Kasikornbank will today raise all fixed-deposit rates 0.35-1.25 per cent. The bank's three-month rates will be 2.35-2.65 per cent, while its six-month rates will be 2.5-2.75 per cent. The bank's 12-month rates will be 2.75-3 per cent, while its 24-and 36-month rates will be 3.5-3.75 per cent.

The bank's minimum lending rate, minimum overdraft rate and minimum retail rate are 7.25 per cent, 7.5 per cent and 7.75 per cent, respectively.

The central bank, meanwhile, faces the challenge of bringing inflation back on track as the business sector tries to adjust operations to cope with high prices.

Both the public and the private sectors should also restore confidence to lead to investment, employment and economic growth, said Pairush.

Chatchai said the government should solve not only short-term problems, but also long-term ones through effective cooperation and planning. For example, it should launch a target to reduce oil use and find sources of alternative energy with appropriate management of natural resources.

The meeting concluded that the baht was increasingly stable, which assisted with smooth economic adjustment. However, the private sector said the BOT should closely monitor speculation in the currency.