Fears of double-digit inflation in Thailand are easing due to falling oil prices, Bank of Thailand governor Tarisa Watanagase said on Saturday, suggesting a reduction in the need for more interest rate increases.
She also brushed aside a spat with the government about her anti-inflationary stance, saying she felt no pressure from Finance Minister Surapong Suebwonglee, who fears higher rates will crimp growth and hit the government's sagging popularity.
"I don't think it's a problem. Everybody is working for the interests of the country. Consultation is needed," she told reporters asking for her reaction to deputy finance minister Suchart Thadathamrongvej's calls on Friday for her resignation.
"I understand it's not like that. Many people want to come to help fix economic problems," Tarisa said. The central bank raised rates last month by 25 basis points to 3.50 percent - its first hike in two years - and hinted at more to come after annual inflation hit 9.2 percent in July, fuelled by soaring food and energy prices.
However, Tarisa said a sharp drop in world oil prices, which fell to a 3-month low of $115 a barrel on Friday, had helped reduce the chances of annual inflation hitting double-digits in the second half of this year. "Worries about inflation have eased, but I don't want to say that we have no worries at all. We have to keep watch closely," she said.
She also struck a conciliatory note in the dispute with Surapong, saying interest rates were not necessarily the only way to ensure price stability. "Using interest rates is one way to tackle inflation. But there are still many instruments that can help fix the problem. With only one policy, it is impossible to have an effect. It should be from both monetary and fiscal policies," she added.
"When considering rate policy, we have to look at the latest information to make a decision," she said. Tarisa's outspoken deputy, Atchana Waiquamdee, said on Thursday the fight against inflation was not yet over, reinforcing market expectations of another rate hike at the bank's next Monetary Policy Committee (MPC) meeting on August 27.
Investors have been worried about the bank's independence since the government's announcement at the end of last month of a new central bank board stacked with people noted for favouring growth over price stability.
The proposed board has the authority to appoint a new MPC, but cannot do so until its own appointment has been formally signed off by King Bhumibol Adulyadej - something the revered monarch is yet to do. With every day that passes without the royal nod, the chances of there being a new, dovish MPC before August 27 decrease.
The King is held in semi-divine regard in Thailand, and is officially above politics, meaning nobody can question his action or inaction. However, he has been known to take many weeks, or even months, to approve government decisions, especially in the run-up to the 2006 coup against Prime Minister Thaksin Shinawatra, who is also Surapong's former boss.
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