GSB head urges prolonged rate cut

Vitai Ratanakorn, president of Government Savings Bank (GSB) and a candidate for Bank of Thailand governor, has suggested the policy interest rate should be greatly lowered for a sustained period to revive the stagnant economy.

- WICHIT CHANTANUSORNSIRI

In addition, the effectiveness of transmitting policy rate cuts to commercial banks' lending rates must be improved, he said.

According to Mr Vitai, under current economic conditions, monetary policy requires much lower interest rates, reduced gradually over a long period.

However, more important than the rate cuts themselves is ensuring commercial banks actually lower their lending rates in response.

In the past, when the policy rate was raised, commercial banks followed suit. But when the policy rate was cut, the lending rates did not decrease proportionately, he said.

Limited reductions in lending rates diminish the impact of the policy, said Mr Vitai.

Worse still, he said commercial bank lending has contracted, attributed to two reasons: the sluggish economy discouraging people from borrowing, and strict lending criteria from commercial banks that stymied potential borrowers.