Oct. 6--The Finance Ministry reassured businesses yesterday that liquidity is ample in the local financial system but signalled that interest rates would be cut to avoid longer-term impacts from the global credit crunch.

Finance Minister Suchart Thada-Thamrongvech told executives of the Federation of Thai Industries (FTI) that liquidity was not a concern for the time being, with 400 billion baht available in the system.

However, inflows have been falling and in coming months this may not be enough. The government is also about to embark on investing in the infrastructure development scheme aimed at boosting economic growth.

The Bank of Thailand seems to agree that the interest rate should be cut due to global market liquidity tightening in the wake of the US financial crisis, said Anusorn Tamajai, an economist and adviser to the Finance Minister.

He suggested that the current 3.75 percent rate should be reduced by 25-50 basis points by the end of the year.

"We have to act fast enough to avoid the potential impacts. There is a time lag before the rate cut takes effect," he said.

FTI chairman Santi Vilassakdanont said the group stressed the need for economic ministries and agencies to better manage liquidity and the exchange rate amid vulnerable local and global economic conditions.

"The global trend is that interest rates both in the US and Europe have been maintained or cut. Thus, we think that the rate here should move in the same direction, as inflation has eased in line with oil prices," said Mr Santi.

Dr Anusorn said that maintaining adequate liquidity in the local market requires the government to control the issue of baht bonds by foreign companies -- although with caution, to avoid misleading investors on its intention.

"The move may send the wrong signal to international investors that Thailand is not an open market," he said. "Otherwise, the government would have problems if we want to mobilise funds for the megaprojects."

The government has planned to spend 1.7 trillion baht on infrastructure schemes, including 770 billion baht for building mass-transit rail lines in greater Bangkok over the next four years. Part of the funding would be raised by baht bond issues together with loans provided by the Japan Bank for International Co-operation (JBIC).

Mr Suchart added that the Finance Ministry would look into the possibility of providing financial assistance to small and medium enterprises in the form of an small and medium enterprise fund.

The government has populist economic measures in the pipeline including village funds and the SML (small, medium, large) community programme to finance community investments.

"This would help stimulate spending by lower-income consumers, which would in turn benefit overall economic growth," he said.

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