BOT seeks safeguards against volatility
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THE BANK of Thailand has further embraced easing measures for capital-account liberalisation in an attempt to protect an economy affected by uneven growth from market volatility and fears over the global economy, said BOT Governor Veerathai Santiprabhob.
He said that even though the Thai market could survive the effects of China’s financial volatility, policy divergences and the plunge in the crude-oil price, the central bank considered that capital-account liberalisation was needed to help balance inflows and outflows to reduce the negative effect on the business sector.
Veerathai said the Kingdom could cope with the financial volatility given its current-account surplus of US$34.8 billion (Bt1.2 trillion), its high level of international reserves and its low level of private-sector foreign debt.
However, severe geopolitical risks, new epidemics and the risks posed from the recovering economies of advanced markets were challenges to that analysis. As a result, the BOT would encourage the business sector to hedge against the risks along with balancing flows.
Veerathai said the BOT would also support banks in making baht loans to businesses with activities in CLMV countries (Cambodia, Laos, Myanmar and Vietnam) and in southern China, in line with capital-account liberalisation to balance flows.
He said the Trans-Pacific Partnership trade agreement was an example of financial liberalisation, and the BOT had eased its
monetary policy to deal with liberalisation such as allowing more foreign banks to do business in the country.
He said Thailand, like the global economy, was on the path to recovery, with the key driver of the country’s growth government and private investments including for tourism.
However, the central bank is worried over the uneven economic growth because the recovery is not spreading to the agricultural sector or the urban economy. The income of people in non-agricultural sectors has increased only slowly.
Veerathai said the government needed to work through this period of uneven growth by implementing short-term measures, resulting in household debt remaining high.
He said the easing policy was one of three BOT measures aimed at stabilising monetary policy. The central bank embraced the easing policy last year through a low policy interest rate and foreign exchange rate in a bid to aid economic recovery.
Low inflation also helped the monetary policy via this easing measure.
Veerathai added that the US Federal Reserve was likely to delay raising interest rates when it meets next month after Fed chairwoman Janet Yellen said financial conditions had become “less supportive of growth”.
He said that was combined with the prolonged low price of crude oil, while low inflation in Thailand should remain until the end of the second quarter as earlier predicted or the end of the third quarter.
The uneven growth and the low incomes for households in the agricultural sector will have an impact on debt repayments, with non-performing loans in the banking system tipped to increase from the 2.55 per cent of total loans recorded at the end of last year.
