BOT losses a cause for worry for some, but chief is unfazed

The Bank of Thailand's board members are still at odds over the central bank's losses, though they have been able to compromise on the inflation targeting issue, BOT Governor Prasarn Trairatvorakul said.

Referring to the board meeting on Thursday evening, he conceded that some members were concerned about losses stemming from money-market operations, though most agree about continuing with the inflation-targeting policy after backing from the International Monetary Fund about the tool's effectiveness in tackling inflation and ensuring growth stability.

The BOT's aggregate losses in 2011 were Bt200 billion.

Board chairman Virabongsa Ramang-kura, who favoured abolishing inflation targeting and was the first to express concern about the losses, left the meeting after an hour, citing urgent business.

On inflation targeting, Prasarn said there is no clarity on what could be an alternative tool. Inflation can be controlled with foreign-exchange policy, but that comes with risks like what Thailand witnessed in 1997. Then, a fixed-exchange-rate system was in place and the BOT spent huge amounts from its reserves to maintain it.

He insisted that inflation targeting would keep inflation and economic risks in check. "Deep down, the Monetary Policy Com-mittee ensures economic expansion without creating inflationary risks."

Prasarn said board members involved in deciding monetary policies were not concerned with the losses, with the understanding that excessive concerns may lead to inefficient policies and confusion in the money market. He noted that excessive losses were bound to cause concerns, but at the current level, the losses are not that huge.

"Some members, including two deputy governors who also sit on the Monetary Policy Committee, and I, understand this issue. I can't speak for the other members who believe that a lower interest rate would reduce the [central bank]'s interest burden. However, monetary policies can't be factored into balance sheets, as this may cost public confidence," he said.

He is positive that the difference in opinion could be resolved through a committee formed recently at Virabongsa's instruction.