BOT watches capital flows after BOJ move

BOT Governor Prasarn Trairat-vorakul said the Thai central bank was monitoring capital movements closely after the Bank of Japan (BOJ) moved to increase the money supply, in a move that was similar to the US Federal Reserve’s quantitative easing (QE).
“The move came after [Japan’s] sharp economic slowdown.
“Japan, similar to the US, has limited fiscal tools because of high public debts. Worse than that, Japan is an ageing society. Its monetary policy is also limited as the interest rate is close to zero. Therefore, Japan has to purchase financial instruments,” Prasarn said.
He said the likely impact on money markets in the region, including Thailand, from the BOJ move could be similar to that from QE of the US. The Thai central bank is monitoring the amount of capital inflow.
On Hong Kong’s intervention in money markets that could affect other countries including Thailand, Prasarn explained that Hong Kong and Thailand differed in monetary policy. Hong Kong pegs its dollar to the US dollar.
Hong Kong’s economy is related to growing mainland China and there is a large amount of capital flowing into the special administrative region on expectation of rising asset prices, he said. Hong Kong’s previous measures on capital movement include loan-to-value.
In Thailand, the baht is more flexible and no irregular capital movement has been found yet, Prasarn said.
In the face of Hurricane Sandy that forced the closure of the US stock markets, Prasarn said no impact had been seen yet on money markets in Asia including Thailand.
He said there was a possibility that capital would flow back to the US to repair storm damage after some expected some capital to flow into Asia.
On the progress of the case on businesses that overcharge for hire-purchase loans, Prasarn said the central bank had been considering whether it was necessary to oversee them.
The BOT may provide knowledge on borrowing through this method or promote financial institutions, especially commercial banks, to extend their coverage to this type of loan.
“We have been considering whether to encourage banks, which have low borrowing costs, to extend businesses to microfinance,” Prasarn said.
On reports of a recent relatively sharp increase of non-performing loans at Thai Credit Retail Bank, Prasarn said he had not seen the figures yet. but believed no much impact on financial institutions in the system. Usually, NPLs arising from retail customers have been managed more swiftly than those from big customers and most of them arose from last year’s floods.