Situation ripe for growth-driving strategies, BOT governor says

In his first meeting with the media since his five-year term started on October 1, Veerathai implied that the economy needed a boost. While supporting the Finance Ministry’s measures, he said there was room to maintain the country’s relaxed monetary policy.

“Our important mandate is to maintain economic stability in the short and long terms. But in a period when there is no major concern regarding stability, that means that there are ways to follow policies that are helpful for the economic recovery,” he told reporters.

“This does not mean that this is what I am going to do in the first six months, but it is something that the central bank has been continuing to do, such as lowering the policy interest rate, which has already been done twice this year,” he said. 

An opponent of populist policies, Veerathai, a former economist of the International Monetary Fund (IMF), said mismanaged stimulus measures could hamper state banks’ financial stability, but the latest measures had low risk and should help with economic expansion next year. 

Among the schemes are the soft loans charging 4-per-cent interest with a budget of Bt100 billion from the Government Savings Bank (GSB) and Bt10 billion from the Government Housing Bank. Veerathai said GH Bank’s programme was small compared with the bank’s outstanding loans of Bt800 billion. 

According to GH Bank, its non-performing loans at the end of 2014 totalled Bt42 billion or 5.4 per cent of outstanding loans, up by 7 per cent from 2013.

Veerathai believes that the fiscal measures help gross domestic product grow by 3.6-3.7 per cent in 2016, aside from a few other factors. These are the low base, government investment in infrastructure mega-projects and follow-up private investment, improvements in exports from the US recovery, and the continued excellent performance of the tourism industry.

“The government’s stimulus measures are not something that you can press [a button on] and they will turn on immediately, so the effects have been factored into our economic predictions for next year, when we expect the economy to expand by around 3.6-3.7 per cent,” he said. 

The country needs to invest in infrastructure and find ways to increase productivity and labour efficiency to maintain its economic potential and cope with the new global economic norms, such as low commodity prices, which are expected to continue next year, he said. 

Overall, he said he was convinced that Thailand’s fiscal position is better than in 1997. He was then on the IMF team tasked with supervising emerging markets. 

The IMF expects Thailand’s current-account surplus to swell to US$17.2 billion this year or 4.4 per cent of GDP.

Outflows are low compared with the size of the surplus. The share of non-resident holdings of government and quasi-government bonds is small at around 7-8 per cent, while private bonds are largely dependent on the domestic market. 

Foreign holdings in Thai shares have also fallen from around 37 per cent last year to 30 per cent from the outflows since the beginning of this year. Most of them are strategic holders. The central bank this year has cut the 2015 GDP growth projection twice from 4 per cent to 2.7 per cent. The policy interest rate is now 1.50 per cent, near the record low of 1.25 per cent in April 2009, which has helped weaken the US dollar/baht exchange rate. 

“There is no escaping the fact that major changes in regional currencies will affect the baht. But other currencies in Asia have fluctuated more in the previous period, when the volatility rates of the Malaysian ringgit and Indonesia rupiah were double that of the baht,” Veerathai said.