Thai economy will not be affected by US QE3: BOT

The central bank believes it would have a smaller impact on Thailand compared to QE1 and QE2, according to its evaluation of the QE3 in an October report on inflation trends. It estimated that the capital flow into Asia and Thailand triggered by the QE3 is smaller than the previous QE measures undertaken when the Asian economy was weaker, especially due to the decline in exports from the region.
Recently, the International Monetary Fund (IMF) reduced the projection for this year’s economic growth of developing countries in Asia from 7.1 per cent to 6.7 per cent, and revised it downward from 7.5 per cent to 7.2 per cent for next year.
The returns from capital markets in Asia and profit-making opportunities for investors have reduced significantly compared to the QE1 and QE2 periods. The gap between the return on investments in the bond market in countries in the region and government bonds has narrowed. Notably, the gap between returns on long-term national bonds in Southeast Asian countries and the US reduced by 1.1 percentage point once the Federal Open Market Committee implemented the QE1 and QE2 measures.
As a result of the BOT’s policy towards the free flow of capital investment, the capital flow into Thailand is now more balanced, which helps reduce the pressure on baht appreciation.
During the QE2 period, the BOT has relaxed regulations for Thai investors, who would be able to invest in overseas capital markets more freely. About US$4.27 billion (Bt128 billion) foreign investment flowed into Thailand’s stock market during the QE2 period. However, outbound investments from Thailand to overseas markets reached $5.81 billion during the period. The move has been driven by various factors, including the decline of asset values in developed markets overseas, especially those which had been facing economic recession, the upcoming Asean Economic Community (AEC), the surge in local labour costs, and the opening-up of Myanmar.
The dynamism of Thailand’s property market is not significantly reliant on foreign investments in comparison with other countries, which face high risk of a bubble in the property sector, such as Singapore and Hong Kong. The QE3 measure will have a direct impact on property prices in these two countries.
The demand for condominiums in Thailand has accelerated in the past months but it was not due to QE1 and QE2.
The increase in the price of condominiums resulted from the government’s stimulus measure for the local property sector, which was implemented from the second quarter of 2008 until the second quarter of 2011, including the expansion of mass-transit routes and construction costs, driven by the increase in land price, construction materials, and labour costs.