Thai government feuds with bank

The Thai economy is still struggling to recover from the Asian crisis

The Thai government has suggested that it is ready to use its authority to restrain the central bank.

The government and the bank are reported to be locked in a deep dispute over monetary policy.

Low interest rates are one of the crucial factors for the recovery process

Central Bank

The bank thinks that a low interest rate policy encourages foreign debt repayment which is good for the economy.

But the government thinks that low interest rates have led to capital outflows and has also called for the coordination of fiscal and monetary policy.

The dispute over policy comes as Thailand is still struggling to drag its economy back up after the aftermath of the Asian crisis.

Ultimate authority

The government wants the bank to review its policy of low interest rates, but the bank has reacted negatively to what it sees as interference.

A statement from Government House on Friday said that reports over the rift had been "misleading".

But it also set out why and how the government has final authority over economic policy, and ultimately, the bank.

It also raised the point that the bank governor, Chatu Mongol, is appointed by and serves at the behest of the government.

Some interpreted this statement as an indirect threat that the present governor could be dismissed.

Bank sticks to its guns

Earlier in the day, the bank had proved that it was not showing any signs of easing its policy to appease the government.

"Low interest rates are one of the crucial factors for the recovery process," said the bank in a memo.

The government's statement is though to have been issued as a reply.

"The government will not interfere in the day-to-day operations of the Central Bank but, at the same time, it will certainly not allow the central bank to interfere in the implementation of government policy," read the government statement.