Governor Prasarn Trairatvorakul, left, with Nation Multimedia Group chairman Suthichai Yoon, at The Nation Exclusive Insights for CEOs.
During "The Nation Exclusive Insights for CEOs" question-and-answer session, Bank of Thailand Governor Prasarn Trairatvorakul spoke his mind and revealed some details from the recent meeting of the central bank's Monetary Policy Committee.
How do you view the finance minister's refusal of your lunch invitation?
The truth is at the end of each year, there is a joint meeting between the central bank and the Finance Ministry to set the next year's inflation target. We're also bound to have quarterly meetings, and the dates are fixed. For this quarter, the date accidentally fell on February 21, a day before the policy-rate meeting. The Monetary Policy Committee suggested the postponement of the lunch to after the meeting. The finance minister was just tied up with something and could not show up. It's probably because we changed the date.
How does the BOT view the finance minister's letter to the BOT chairman?
Thailand is in a complex economic condition. Looking at some parts of the issue may show economic risks. For example, under the inflation targeting, we need flexible foreign-exchange rates, and the baht will be allowed to move with the market mechanism. Some view a strong baht as a threat to the export sector, while that could spark concerns on BOT losses among those concerned with the accounting area. We need to explain that our job is to ensure economic stability, and it's fine to post losses [in the process]. Meanwhile, in the new world order, exporters' competitiveness doesn't lie solely on exchange rates.
Historically, has there been a letter like that?
Under the revised BOT law, since 2008, the policies are carried out by the MPC, the Financial Institutions Policy Committee and the Payment System Committee. Unlike in the past, the BOT governor is not chairman of the board. I believe that people will learn through time. Some view that the law provides a balance of power. For example, in policy-rate setting, the BOT governor no longer has the final say.
MPC members include two deputy governors and four experts. Their decisions are publicly announced after the meeting.
Why did the MPC decide to maintain the policy rate amid the government's pressure?
Many issues were discussed [at the February 20 meeting]. Most members viewed that global conditions had passed the worst level, while domestic demand is better than expected, reflecting large loan growth and higher asset prices. One member said capital inflows posed risks and the policy rate should be lowered, but the remaining six saw limited correlation of interest rates and inflows. Some added inflows are to be managed on many fronts, as a rate cut alone won't help and would be a waste. A cut will not delay inflows and could affect price stability.
Were there any small-group meetings before the MPC meeting?
There was no pre-decision. Mostly, it's guessing. Normally before the meetings, MPC members are invited to a macroeconomic briefing that is at least a week before the MPC meeting. Then, two reports [in blue and red covers] and an analysis are presented to the members for their consideration. The members can also ask for more information. Three days before the meeting, the members receive a green-covered report - another analysis. All three reports are brought with them to the MPC meetings. There is no attempt to create a lobbying atmosphere. Outside members also have their own information and they have freedom to express their thoughts. I had no idea what the result of the last meeting would be.
Are you concerned that the decision against government's pressure will cost your job?
If I say no, that would be a lie. Yet other governors also experienced this. In the hallway towards the BOT governor's office, there are photos of former governors. One of them, who was the governor when I first joined the BOT, was also pressured to lower the interest rate when it should have been raised. At the time, he held absolute power over the rate setting. He decided to cut the rate but days after that, the government nominated a new governor for the Cabinet's approval. Eventually, the governor lost his job.
Knowing that he would be dismissed anyway, that governor could have been more proud with himself if he had decided to raise the rate on that day. I learned that after that day, the former governor regretted his wrong decision. If he had raised the rate then, he would have been happier and proud to have done what he believed in. Today, it is lucky that the governor does not have absolute power over the rate.
Can't the finance minister be convinced that the BOT's and MPC's standpoint should bring more benefits than the ministry's?
We know what he is concerned about - the baht's appreciation and export competitiveness. Our role is to alleviate the burden.
Would your view be different if you were the finance minister?
It depends on points of concern. It can't be said that the BOT is free from public obligations. Under the revised law, the BOT is to show joint responsibility. Inflation targets are not solely set by the BOT, as it requires the Cabinet's approval. Each year, we need its approval, and after that we carry out activities to achieve the target. The BOT needs independence to carry out the activities but if it fails, it owes an explanation to the government. This explains why the MPC's decision is detailed in the meeting minutes.
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Article source: http://www.thethailandlinks.com/2013/02/27/bot-finance-must-weigh-economic-complexities-prasarn-says/
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