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Korn: Weaker baht would increase oil prices - Thailand

Former finance minister Korn Chatikavanij has warned the government that intervening in the foreign exchange market to weaken the baht would result in an increase in oil prices and hurt the economy.

Mr Korn was responding on Tuesday to Deputy Prime Minister Kittiratt Na-Ranong's comment that the Thai currency should be depreciated to a range of 32 to 34 per US dollar to help exporters and stimulate economic growth. Mr Kittiratt is also finance minister.

Mr Korn said the Bank of Thailand is responsible for overseeing the exchange rate, especially monetary policy, and the interest rate.

He asked if the political sector was trying to intervene in the central bank's area of responsibility, because adjusting the interest rate would have a significant impact to the economy.

"The people are now suffering from rising product prices as a result of the government's energy policy.

"Reducing the interest rate in order to weaken the baht would cause the price of fuel bought from foreign countries to increase, and the people would suffer even more.

"The government must think carefully whether this is a policy that would benefit major businessmen and hurt the people at the same time," the opposition Democrat deputy leader said.

He said it was fortunate that the monetary market did not give importance to Finance Minister Kittiratt's comment about his plan to weaken the baht since the BOT has the actual tools to implement the plan.

"The finance minister should instead focus more on ways to solve the people's problems stemming from the high cost of living," Mr Korn said.

Mr Kittiratt has responded to concerns expressed by economists that a weaker baht would hurt the country because it would increase the cost of imported fuel, by asserting that the fluctuation in global oil prices is an uncontrollable factor.

"But the global oil price fluctuations affect every country and it would not hurt the country’s trade competitiveness as some people fear," the deputy premier said.

Fiscal Policy Office director general Somchai Sujjapongse said on Tuesday the FPO has raised its gross domestic product growth projection for 2012 to 5.5 per cent, from the previous prediction of five per cent.

The revised forecast was based on the expectation that investment by the private sector would increase by about 11.9 per cent this year, up from 7.3 per cent reported last year. The investment from the public sector was expected to grow by 12.7 per cent, from minus 8.7 per cent last year, said Mr Somchai.

Domestic consumption by both the public and private sectors is projected to go up by 4.5 per cent, from only 1.4 per cent increase in the consumption of the public sector and 1.3 per cent of the private sector, he added.

The average price of global crude oil is projected at US$118 a barrel for the year and the exchange rate is forecast at 31 baht per dollar. The key policy rate of the central bank is expected to increase to 3.25 per cent this year, up from the current rate at 3.00 per cent, the FPO chief said.

Exports growth for the year is projected at 13.5 per cent, while general inflation would be around 3.6 per cent and 2.3 per cent for core inflation, which excludes food and energy.

Mr Somchai said factors that would boost economic expansion this year were the recovery in the production sector, which accounted for 41 per cent of GDP, and the 350 billion baht worth investment projects under the government’s water resources management and flood prevention master plan.

The FPO's GDP growth projection was in line with that of the Economic and Social Development Board which recently forecast economic growth for the year at between 5.5 per cent and 6.5 per cent, up from the previous figure of 4.5 to 5.5 per cent.

The BOT also increased its growth projection for 2012 from 4.9 per cent to 5.7 per cent recently.

The substantial increase in investment by both the public and private sectors would result in the decline in trade surplus, to only $7.3 billion, from $23.5 billion reported last year.

In addition, the increase in imports of machinery and capital goods would make the country experience a current account deficit of about $3.5 billion, or about 105 billion baht, compared with a $11.9 billion current account surplus last year.

Former finance minister and former cedntral bank chief Pridiyathorn Devakula said he expected that GDP growth this year would not be as much as five per cent and could even stay at only four per cent.

Exports would not substantially expand as in the past years due to the fragile economies in the United States and the European Union and a slower pace of economic growth in China. There was no support factor to boost economic growth in Thailand as before, said M.R. Pridiyathorn.