BOT's rate policy wrong: Virabongsa

He told a symposium hosted by the Fiscal Policy Office that he objected to the central bank's use of policy interest rates to tackle inflation and said the BOT's adoption of wrong policies could lead to a new crisis.

"I'm concerned about the central bank's wrong policy of blindly following the International Monetary Fund's instruction to hike [interest] rates to fight inflation with¬out looking at its real cause," Virabongsa said.

The central bank recently raised its poli¬cy interest rate by 0.25 per cent to 3.5 per cent, and there are widespread predictions it will raise the rate again this year.

The former deputy finance minister said he supported the government's six stimulus and costrelief measures, including cuts in excise tax, free electricity and tap water and free rides on public buses and trains for six months. "Although the government may spend more, it's under prudent management of fiscal policy," he said.

Virabongsa said Thailand should make use of the central bank's huge foreign reserves for public investment. The government need¬ed to invest more in infrastructure projects like rail lines and alternative energy. The Kingdom was not well prepared for high oil prices, and may need to introduce nuclear power to generate electricity, he said.

High oil prices would erode Thailand's competitiveness, while competitors like Malaysia and Indonesia, which export oil, had an advantage.

Richard Pyvis, CEO of Hong Kongbased fundmanagement firm CLSA Capital Partners, said it was only a matter of time before the central bank raised the policy inter¬est rate again. "Sooner or later, the bank has to increase the policy rate. It is only a matter of when," he said. He suggested the government integrate the rural economy into the formal economy. This would result in more tax rev¬enue, and farmers should also receive high¬er incomes, because firms now took all of the profits from selling farm goods."Agricultural values should be left at the farm gate," he said.