BangkokPost Article Link: http://m.bangkokpost.com/business/333483
In this article, the Central Bank of Thailand is unwilling to cut interest rates further from 2.75 percent. However, Chairman Ramangkura believes that the differences in the US and Thai interest rates are causing too much appreciation to the Thai baht (since Americans are investing in Thailand due to the higher interest rates, causing high demand which is spurring the appreciation of the baht), and he is supported by economist Mr. Suthiwart-Narueput, who believes that lowering the interest rates is a cheaper way of decelerating the appreciation of the baht, which is important because of the harm that unmitigated appreciation could do to local businesses by hurting their capability to export. However, the central bank and Chulalangkorn University's Mr. Manprasert, think that such a low interest rate could fuel a rapid increase in asset prices and create a financial bubble, and that injecting the baht into the foreign exchange market is a safer means of preventing appreciation. Additionally, changes in the interest rate might not have the impact on investors that Chairman Ramangkura hopes for.
While the manipulation of interest rates is an effective tool at manipulating the exchange rate, I believe that the expense of injecting and then rebuying a currency is not significant enough to resort to interest rate manipulation. Injecting large quantities of the Thai baht is a reliable approach to increasing the supply of it on the market (and thus lowering its price), and does not carry the risk of potentially creating a bubble of asset prices. Changes in an interest rate might also have too slow or too unsubstantial an impact on foreign investors, so I would recommend forgoing the interest rate cut and instead pursuing an injection of the Thai baht into the foreign exchange market.
In this article, the Central Bank of Thailand is unwilling to cut interest rates further from 2.75 percent. However, Chairman Ramangkura believes that the differences in the US and Thai interest rates are causing too much appreciation to the Thai baht (since Americans are investing in Thailand due to the higher interest rates, causing high demand which is spurring the appreciation of the baht), and he is supported by economist Mr. Suthiwart-Narueput, who believes that lowering the interest rates is a cheaper way of decelerating the appreciation of the baht, which is important because of the harm that unmitigated appreciation could do to local businesses by hurting their capability to export. However, the central bank and Chulalangkorn University's Mr. Manprasert, think that such a low interest rate could fuel a rapid increase in asset prices and create a financial bubble, and that injecting the baht into the foreign exchange market is a safer means of preventing appreciation. Additionally, changes in the interest rate might not have the impact on investors that Chairman Ramangkura hopes for.
While the manipulation of interest rates is an effective tool at manipulating the exchange rate, I believe that the expense of injecting and then rebuying a currency is not significant enough to resort to interest rate manipulation. Injecting large quantities of the Thai baht is a reliable approach to increasing the supply of it on the market (and thus lowering its price), and does not carry the risk of potentially creating a bubble of asset prices. Changes in an interest rate might also have too slow or too unsubstantial an impact on foreign investors, so I would recommend forgoing the interest rate cut and instead pursuing an injection of the Thai baht into the foreign exchange market.
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