Local politics have bigger impact on Thai economy, not US policy

Local political developments have more impact on the Thai economy than US monetary policy, says the central bank.

Speaking at a seminar on “QE and the Public Debt Ceiling Crisis: Hallucination and Facts” yesterday, Bank of Thailand team executive Nasha Ananchotikul noted: “The political situation plays a major role that could affect the Thai stock market more than the QE programme, given its impact on the Thai economy’s creditability and growth direction in the next periods. Investors fear uncertainties, and that comes with slowdown in investment.”

If the local political situation worsens to a certain level, that could have more effect on the Stock Exchange of Thailand than the issue of the United States’ quantitative easing, she said. During the announcement of the first round of QE, stock markets across the world rose, but the Thai bourse dropped on concerns over impacts from the shutdown of Bangkok’s international airport. 

Currently, the Thai economy is facing limitations, including corrections of private consumption that came faster and could last longer than the BOT’s expectation, Nasha said. The BOT had forecast that the slowdown would follow the end of the government’s economic stimulus. 

Based on a study, she said the QE issue was expected to affect Thailand through correction of foreign investors’ portfolios. If US interest rates remain low for a long period, that could prompt capital to seek higher-return assets in growing Asia, which in turn could see a weakening of the US dollar against Asian currencies.

With Janet Yellen, vice chairwoman of the US Federal Reserve, supporting the Fed’s ultra-easy monetary policy until that country’s economy recovers to a satisfactory level, this could calm down investors in money markets, Nasha said.  Yellen is set to take over leadership of the Fed from outgoing chairman Ben Bernanke.

Nasha said the BOT paid more attention to keeping Thailand’s own policy rate at a proper level as the QE programme had caused money-market distortions.  Low borrowing costs have led investors to make distorted assessments of risks. 

The BOT is keeping a watch on the money market in Thailand despite there being no sign of problems yet. 

Kiattisak Jenwipakul, managing director for research at SCB Securities, said the QE issue had little impact on the SET and the Thai economy, while local political developments had more of a psychological impact on the bourse in the short term.

He said the economic slowdown the Kingdom had experienced this year was a factor of lower domestic consumption. “Next year could seen a return to normal following the global economic direction, which could prompt improvement in Thai export growth, which is targeted at 4.5 per cent.”