Interest-rate policy alone will not fix economy

Surapong, who is also deputy prime minister, told a seminar entitled "The Energy Crisis: Thailand's Economic Scenario", hosted by Krungthep Turakij, that middle-path economic policies were necessary at this time, based on Lord Buddha's Kalamasutra lesson, so that the problem was managed properly.

He said economic policies must be based on vast information, vigilant evaluation and efficient analysis and that this would lead to the right policies.

"Our past beliefs must be examined to see if they are suitable for the current situation. Many things that happened in the past do not necessary repeat themselves now. We must not be held back by the old beliefs," he told the audience.

He insisted he was not critical of the Bank of Thailand, which inclines towards higher interest rates to tackle inflation, but said the central bank must not attach itself to the old theories and should instead welcome new ideas.

Surapong said many central banks handled inflation in different ways, such as by interest rates in the Philippines, foreign-exchange policy in Singapore or a mix of policies in China. In the United States, despite rising inflation, the Federal Reserve Board has kept its federal fund rate unchanged, as has Malaysia's central bank.

"We should evaluate carefully and not need to use only the interest-rate policy," he said.

According to Bandid Nijathaworn, the Bank of Thailand's deputy governor, inflation in the second half of the year will be the central bank's key focus, because this will hurt business investment as well as consumption.

He did not say interest rates must be raised to counter inflation, but several central bank officials earlier mentioned the necessity of higher rates. Bandid said higher oil prices would bring about not only inflation but also a trade and current-account deficit, as a result of rising import value.

Soaring oil prices also fuel production costs and dampen private consumption, which will eventually drag down economic growth.

"We have to be cautious on the inflation and current-account figures, which are a risk to economic stability. If the economy continues to grow, it would bring about the risk of inflation and harm the current account. As a result, we have to keep economic growth and inflation at the proper pace," said Bandid.

Meanwhile, former energy minister Piyasvasti Amranand urged the government to introduce compulsory measures to force business and household sectors to reduce energy consumption dramatically, such as lower car speeds, limits on inner-area transport and higher fees for large vehicles.

He also asked for clear and well-coordinated macroeconomic policies to handle the problems. A rise in interest rates may not help slow cost-push inflation, but it would strengthen the baht, which would relieve the pressure of oil prices.