Thursday, August 21, 2008

Thai king gives embattled central bank a boost

BANGKOK, Aug 21 (Reuters) - Thailand's King Bhumibol Adulyadej praised Bank of Thailand (BoT) Governor Tarisa Watanagase on Wednesday for her efforts in maintaining monetary stability despite criticism of her by some government officials.

'Not only do you have to work hard but you are also being criticised for not doing well enough,' the revered monarch said in an unusually clear allusion that most Thais will interpret as a major swipe at the government.

The king, whom many Thais regard as semi-divine, told Tarisa and private bankers he appreciated the BoT's pursuit of a conservative and cautious monetary

policy, especially as it was meant to pre-empt problems of excessive national spending.

'My thanks for all your hard and tiring monetary work and my wish for your success in national monetary management,' he said in a televised audience at his

palace in the beach resort of Hua Hin.

'I know that you are tired and am aware that it is not easy for you,' he added. 'My appreciation is for your ability to keep the monetary situation in good shape, to keep the country from heading towards a disaster which we may face if we are not careful about spending.'

Finance Minister Surapong Suebwonglee and senior ministry officials have openly criticised the BoT's decision to raise policy rates in mid-July, saying it was not necessarily the best way to fight decade-high inflation.

The government is worried higher rates will crimp already stuttering growth and hit its sagging popularity.

Some finance ministry officials have suggested holding Tarisa personally responsible if the bank's hawkish monetary policy fails to curb inflation and disrupts economic growth.

The BoT raised its key policy rate by 25 basis points to 3.50 percent on July 16 to try to tame oil-stoked inflation, which soared to a 10-year high of 9.2 percent in July.

A Reuters poll on Tuesday showed that most analysts expected the BoT to raise its key rate by another 25 points to 3.75 percent next Wednesday to signal its determination to fight inflation.

These analysts said the central bank risked losing its credibility if it decided to hold rates on Aug. 27 after its upper core inflation target of 3.5 percent was breached in June and July.

Since May 2000, the central bank has adopted an inflation targeting policy to keep core inflation, excluding food and energy prices, within a 0-3.5 percent range.

Economists expressed concern a few weeks ago about whether the BoT would retain policy independence after the cabinet appointed a new BoT board packed with pro-growth government nominees.

Under a new Bank of Thailand act, the board can appoint a new Monetary Policy Committee, as well as fire the governor. However, the new bank board has yet to come into being as the king has yet to sign off on the cabinet decision.

The king has not made clear his reasons for the delay in approving the board's appointment.

(Reporting by Vithoon Amorn, Editing by Ed Cropley and Gerrard Raven) . nt

No comments: