BOT urges banks to cut more lending rates

BOT's deputy governor Bandid Nijathaworn's comment was a response to the banks' cutting of rates after the central bank had reduced its policy rate by 50 basis points on Wednesday, to 1.50 per cent.

He said yesterday the banks should transfer their lowered costs incurred by falling policy interest rates to benefit the business sector. They should slash the lending interest rates increasingly to lower the cost of borrowing and debt repayment by the real sector.

Moreover, banks should keep their deposit interest rates at a proper level,Bandid said. Too low deposit rates would adversely affect interest income and private spending. Banks should realise that depositors could shift their money out of the banks for other investment channels, such as corporate debt.

"This a is factor for the banks in managing liquidity. I want the banks to adjust (interest rates) by taking such factors into account," he said.

Bandid said the banks had responded to the policy rate changes rapidly, causing market interest rates to be quite low.

The banks have so far lowered deposit rates by about 131 basis points; and 75 basis points for lending rates; while BOT has cut its policy rate by 175 basis points, excluding Wednesday's reduction. Siam Commercial Bank was the first to announce slashed rates after the Wednesday policy rate cut.

Kasikornbank also announced yesterday a drop in its lending rate of a quarter of one percentage point  and deposit rates by 2550 basis points, effective from today.

The deputy governor said the central bank could not lower the key rate more aggressively than in the past because the monetary policy would have limitations on boosts to the economy. If the global recovery was uncertain, it would put pressure on domestic demand recovery.

"Toolow interest rates have both advantages and disadvantages on the economy so the banks must take care of credit expansion with proper risk management," he said.