Suchat calls for hike in money supply

Deputy Finance Minister Suchat Tadatamrongvej has called on the Bank of Thailand to increase money supply to counter a lack of liquidity.

As foreign investors have con¬tinued to sell Thai stocks, they have reduced liquidity in the market, Suchat said last week.

Previous centralbank bond issuance had also reduced liquidity, he argued. These factors have caused commercial banks to raise both deposit and lending rates in order to mobilise more funds, he said. Commercial banks' lending rates are currently about 7 to 8 per cent and deposit rates are about 4 per cent.

"Money supply is another big issue that the Finance Ministry and the Bank of Thailand need to discuss at length," he said. The central bank might have previously issued too much in bonds, worth Bt1.5 trillion, so it withdrew significant liquidity, Suchat said.

His comments are in line with the stance of the economic adviso¬ry panel, which comprises economic ministers, senior officials and economic advisers to Prime Minister Samak Sundaravej. The panel said on Wednesday after its first meeting that the government would ensure adequate liquidity.

Suchat has continued to oppose the central bank's policy of using interest rates to fight inflation and encourage greater savings. The bank recently raised its oneday repurchase rate by 25 basis points to 3.75 per cent.

He said the Bank of Thailand should not panic about inflation caused by rising oil prices. Higher interest rates would depress economic growth, as they hit private investment and consumption, he said.

If Thailand were like Vietnam, where demand is high, the interest rate should be raised, he said - but demand in Thailand is still weak.

"We should follow Japan and China, implementing low interest rates and a weak exchangerate policy," Suchat suggested.

If people do not have more income, rate increases may not increase savings as the central bank expects, he said. The income factor has more influence than high interest rates to encourage savings, he stressed.

"If we use our common sense, rate increases should encourage savings, but economic theory tells us that it is not always the case," the minister said. "High interest rates could force firms to shut down, laying off workers. When people have no jobs they do not have money to save."

Suchat said he shared this view with Virabongsa Ramangkura, who also prefers low interest rates and an undervalued currency. Virabongsa is chief economic adviser to Samak.

A weak currency would boost exports as Thai goods are relatively cheap compared with those competitors, he said.

Suchat, who supervises the Public Debt Management Office, said the Finance Ministry would borrow more from abroad next year to finance megaproject investments. The government will also issue more savings bonds for sale to retail investors through stateowned banks. Savings bonds will be distributed nationwide and people could invest small amounts of money, he said.

Funds raised from savings bonds will be used to finance megaprojects.