BOT does not expect US Fed to boost benchmark rate
The Bank of Thailand does not expect the US Federal Reserve to increase its benchmark interest rate any time soon even though the US economy is getting better and employment stronger, since the falling oil prices have contributed to low inflation, which c
“The Fed’s view on the US economy has reassured the market that it will increase the interest rate in the second half of this year, which led to the short-term strengthening of the US dollar against the currencies in this region,” said Chirathep Senivongs Na Ayudhya, spokesman for the BOT.
Commenting on the situation in Greece, he said that country’s economy had improve slightly after various reforms, and gross domestic product was able to expand in the second quarter of last year. However, the election of a new government has caused a bit of fluctuation in the euro. Nevertheless, the BOT believes that the European Union will find a way to compromise with the new regime in Athens and the Thai central bank will continue to keep a close eye on the situation.
In a separate interview, Sutapa Amornvivat, chief economist at Siam Commercial Bank, said the BOT still had many monetary measures to deal with the baht besides the interest rate.
“The interest rate as a monetary tool is used for the real economy, such as to stimulate the economy and manage inflationary expectations, and currently there is no problem in this aspect. There will be no significant moves by the BOT on the interest rate until the real economic numbers are released by the [National Economic and Social Development Board] in February,” she said.
Sutapa said that if the BOT deemed it necessary, it could use a currency-intervention strategy. Using the interest rate to stabilise a currency normally occurs when there is a spillover effect into the real sector, which cannot be seen at the moment.
She also commented that the central bank’s Monetary Policy Committee would most likely maintain the interest rate again at its March meeting but the chance that it might lower it had increased since the economy had shown signs of being weaker than expected.
As for the currency war caused by quantitative-easing policies of the European Central Bank and the Bank of Japan, Sutapa said there was a chance that the war would continue to escalate in the near future as seen from Switzerland’s, Denmark’s, Singapore’s, Malaysia’s and Vietnam’s decisions to use monetary manipulation to fix their currency problems.
The next thing that might happen is fiscal manipulation in terms of trade barriers, which cannot be seen at the moment because of the markets’ connections in term of supply chains and World Trade Organisation rules that make it harder for a country to set up such barriers.
