MPC notes fresh risks to economy
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THE BANK OF THAILAND'S Monetary Policy Committee has spotted some new risks for the economy, including the US debt-ceiling talks and the potential massive losses from the Thai government's rice-pledging scheme.
For now, the MPC sees the economic situation as just beginning to stabilise and possibly improving in the future along with the global economic recovery.
The six members of the MPC yesterday voted unanimously to leave the policy rate at 2.50 per cent, where it has stayed since May. The MPC will hold its last regular meeting for this year on November 27.
Ampon Kittiampon, chairman of the central bank and also a member of the MPC, excused himself from the meeting, citing ethical reasons.
Paiboon Kittisrikangwan, secretary to the MPC, said after the meeting that the economy was showing some signs of improvement. Despite the delay in getting the investment mega-projects off the drawing board, inflation has eased, while household debt has slowed down.
The MPC expressed some concern over the huge deficits from the rice-pledging programme, he said.
Former central bank governor MR Pridiyathorn Devakula said on Tuesday that the rice subsidy could cost a net Bt425 billion in its first two years.
Paiboon noted that though the scheme’s losses had not yet been taken into account as an economic factor, this could pose a great risk to Thailand’s fiscal position at a time when international investors are looking closer at emerging markets’ structural problems.
“Reports of US tapering [of quantitative easing, or QE] have led to capital flight, particularly from countries with weak financial fundamentals. Current-account deficits and debt are the focuses of attention.
As we’re in the global system, we have to put the emphasis on these and ensure that the risks will not intensify,” he said.
The economic outlook points towards a gradual recovery, supported by accommodative financial conditions, the MPC said.
The key downside risks remain the uncertain global economic recovery and the delay in fiscal budget disbursements especially for infrastructure projects. Inflation receded in line with subdued production costs and domestic demand. Household debt has decelerated somewhat.
The MPC said in its statement that fiscal policy, despite delayed disbursement, was still supportive of growth, while the current benign monetary policy remained appropriate in promoting economic recovery in the periods ahead, given the fragile global economic and financial situation.
The global economy improved gradually, though with substantial downside risks. The US economy picked up at a moderate pace on the back of private consumption.
“While the impact of the US government shutdown should be limited, failure to lift the debt ceiling poses a substantial risk to global financial and economic stability. A number of euro-area economies exhibited nascent signs of recovery, as sentiments picked up.
“The Chinese economy showed a broad-based recovery in exports, manufacturing and investment, while North Asian economies improved on exports. Asean economies moderated from domestic demand, with somewhat higher external vulnerabilities in some countries.
“The region remained exposed to global market volatility amid uncertainties about the timing of QE tapering and the US fiscal impasse.”
