Inflows in 'wait and see' mode
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US budget battles, Thai politics top factors: BOT chief
Capital flows to Thailand are apparently stalled by fiscal conflicts in the United States and intensifying political conflicts in the Kingdom, the Bank of Thailand governor said yesterday.
“Foreign fund inflows are starting to slow down. Although the stock market is picking up, there is no significant outflow or inflow, as reflected in the narrow range of foreign-exchange rates. It’s like they wait and see, partially how Thailand’s conflicts will be resolved,” Prasarn Trairatvorakul said.
He was quick to add that political conflicts were not new to Thailand, as they could be likened to a natural test of political power. Still, this needs to be closely monitored.
In the past five or six years, a large amount of foreign capital seeped into Thailand, he said. The central bank has absorbed liquidity in some periods, as shown by a spike in international reserves.
As of October 11, Thailand’s foreign reserves stood at US$171.6 billion (Bt5.346 trillion), slightly off the peak of $189.9 billion on April 29.
Although foreign capital sometimes ebbs, that may not pose any problems to Thailand, but the tides need to be managed so that money is not moving out too rapidly and there is not too much currency volatility.
The recent budgetary conflict in the US government has interrupted America’s economic recovery, and that has slowed the movement of foreign funds into Thailand.
While the Stock Exchange of Thailand’s main index managed to stay above 1,400 points despite sell-offs in the middle of the year, the baht has stabilised above 31 per US dollar. After losing 2.44 per cent on Monday, the SET Index gained 0.61 per cent yesterday to 1,457.36 points.
While capital flows are quite balanced, the financial market’s liquidity of Bt4 trillion is enough to support the government’s fund-raising for mega-project investment.
Although there are concerns that public investment may drain the country’s liquidity next year, there remains sufficient liquidity in the system, with some managed by the central bank, Prasarn said.
Each day, commercial banks make overnight investments of Bt500 billion to Bt600 billion, indicating excess liquidity, while the government’s seven-year, Bt2-trillion infrastructure project’s highest planned investment is Bt300 billion to Bt400 billion per year, which is equal to one year’s fiscal deficit.
Such planned investment is not too steep and there remains no liquidity issue at the moment, he said.
Aside from daily liquidity absorption, the BOT sops up excess liquidity through other means. In total, the central bank has taken excess liquidity of Bt4.4 trillion out of the system.
Some banks have been said to face a liquidity crunch with more loans out than deposits in hand, but in the overall picture they do not lack financial resources as they could borrow, if their credit is good, and their liquidity would rise, Prasarn said.
