New Thai central bank chief to adjust interbank rate

Asian Economic News, June 11, 2001

BANGKOK, June 4 Kyodo

(EDS: CLARIFYING BANK OF THAILAND GOVERNOR'S REMARKS IN 4TH PARA)

Bank of Thailand will adjust its overnight interbank interest rate to between the deposit rate and minimum lending rate bidding to slow capital outflow and encourage more inflow into the Thai economy, new central bank Governor Pridiyathorn Devekula said Monday.

''The structure of interest rates in Thai market is abnormal as the interbank rate is sometime below the deposit rate, thus creating an unusually wide spread and capital outflow,'' the governor told a news conference.

The prime lending rate in the Thai market currently averages 7% while the interest rate on deposits is as low as 3%. The overnight interbank rate average last month was 1.53%.

''This guideline allows commercial banks to benefit from interbank portfolios and open a channel for foreign capital to flow into our economy,'' he said, adding the central bank will closely monitor inflow capital to prevent speculation.

The new policy will not disrupt the deposit and loan rates in the market and allow market mechanisms to act naturally, the central bank chief said.

Pridiyathorn, who was appointed last week to replace the outspoken Chatumongol Sonakul after a rift over interest policy between the bank and the government, said his monetary measures would not aim to boost economic growth but to stabilize the money system.

The new policy is contrary to that of the previous governor who believed the low-rate policy would boost growth in Thailand.

Prime Minister Thaksin Shinawatra and Finance Minister Somkid Chatusripitak wanted to stop excessive capital outflow because the low rate policy of the previous governor had allowed debtors to cut their debts in high-rate offshore markets.

''The government should exploit fiscal measures and public expenditure to stimulate the economy,'' said Pridiyathorn at his first news conference.

The major role of the central bank is to keep stability and the major task at present is to build strong national reserves to maintain confidence among financial communities, he said, noting the current $32 billion in the country's international reserves is enough.

On a daily basis, the central bank will manage the stability of the baht to maintain a narrow fluctuation but will allow the currency's value to reflect real status of international reserve in long run, he said.

The central bank also would restore confidence and good relationship between commercial banks and their customers as well as between the commercial banks and the central bank, he said.

The confidence and good financial relation would encourage financiers to inject money into the system, he added.

Pridiyathorn, who will be 54 next month, is one of Somkid's advisers and a well-known banker. But his close relations with the finance minister and within the banking community will not be allowed to hurt the central bank's independence, he said.