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IMF backs Thailand's inflation targetting

Publication Date : 17-08-2012


The International Monetary Fund (IMF) has praised the Bank of Thailand for adroitly managing price pressures while dismissing a report that it supports abandoning inflation targetting, the central bank said yesterday.

"The IMF said inflation targetting is still relevant to current economic environments and it works very well, especially for Thailand," Prasarn Trairatvorakul, the central bank governor, said yesterday.

The IMF had sent a letter to the central bank clarifying its stance on inflation targetting as implemented by the Bank of Thailand, he said.

The move came after the bank's new chairman, Virabongsa Ramangkura, claimed that he had talked with IMF managing director Christine Lagarde and she agreed that inflation targetting was out of date and could not be used to curb inflation.

Inflation targetting became the policy focus of the central bank after the 1997 Asian financial crisis. Each year the Bank of Thailand and the Finance Ministry set a target range for core inflation, which excludes volatile fresh food and energy costs.

This year the target is 0.5-3 per cent. The aim is to maintain price stability.

Virabongsa has ventured the opinion that the central bank should instead target the exchange rate, using its policy interest rate to make the currency weaker.

Prasarn said he had arranged for the central bank's board and the Monetary Policy Committee to discuss inflation targetting and exchange rate policies on Wednesday.

"The meeting should be a positive for the central bank's image, since conflict in the central bank could cause public confusion about monetary policy and it may hurt the image and credibility of the central bank," he said.

The central bank has been operating for 70 years. Forty years ago former governor Puey Ungpakhorn served as an adviser to Singapore for the establishment of a central bank there, Prasarn said.

The Bank of Thailand had a very good image 40 years ago in the region, but now reports of conflict may ruin its reputation, he added.


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