Thailand can cope with volatility if US opts for easing of stimulus: Prasarn

Governor Prasarn Trairatvorakul said yesterday that the central bank awaited the US Federal Open Market Committee (FOMC) decision on reducing its monthly bond purchases, but the decision was unlikely to be markedly different from what the markets had been anticipating.
The FOMC was due to wrap up its two-day policy meeting before press time yesterday.
Previously, the Fed insisted that the reduction in its quantitative-easing (QE) programme would be made at a gradual pace.
“There should not be a big surprise, as the Fed [chairman] clearly stated that an exit or a reduction of the QE programme would be done gradually,” Prasarn said.
Money markets expect the Fed to cut its monthly asset purchases by US$10 billion (Bt317 billion) to $75 billion, he said, adding that this would mean money supply in the global system would increase at a slower rate.
“We think [a cut of] 10 billion [dollars] is the most likely outcome, and that’s |probably entirely in US Treasuries,” Bloomberg quoted Andrew Wilson, |head of fixed income at Goldman Sachs Asset Management in London, as telling Francine Lacqua on Bloomberg Television’s “On the Move” programme. “There’s certainly job creation happening, and that’s what the Fed had mentioned initially.”
However, it is also possible for the Fed not to reduce its bond purchases soon, as some US economic figures are not that strong, Prasarn said, adding that such a decision would come as a small surprise to the money markets.
While the Fed’s purchases of Treasuries and mortgage bonds aim to support the US economy by anchoring borrowing costs, the decision to buy debt backed by home loans specifically attempts to boost the housing market, according to Bloomberg.
A drop in demand for home loans argues against a cut to those mortgage-bond purchases, it said.
The US mortgage-application data for the week ending September 13 were due yesterday, following a 13.5-per-cent decline in the previous seven days – the most since October 2011.
The previous round of volatile capital movement came after the Fed signalled a reduction in its monetary stimulus, prompting most investors to be concerned over problems arising in emerging markets.
After sell-offs of emerging countries’ assets, foreign investors came to analyse each country’s fundamentals and returns on investment.
“What we cannot control is other countries’ monetary policies. Therefore, we have to take care of ourselves without carrying risks. There has to be a sporadic warning not to undertake too much external borrowing,” Prasarn said.