Regulators gear for Brexit, keep rate

As the Bank of Thailand’s Monetary Policy Committee (MPC) decided yesterday to keep the benchmark interest rate unchanged at 1.50 per cent in light of new risks including a possible “Brexit”, Securities and Exchange Commission secretary-general Rapee Sucharitakul insisted that the Thai capital market would experience few effects in the short term.

If the referendum comes out in favour of the United Kingdom leaving the EU, there could be a short-term impact but it will not affect the Thai capital market’s fundamentals, Rapee said. He expressed no concerns over market volatility, as the Stock Exchange of Thailand has a system in place to cope with it. According to most global financial institutions’ analyses, investors have generally factored in this issue, he said.

Thai mutual funds have exposure at approximately 1.6 per cent of their net asset value in the EU, including the UK, Rapee said. About 47 per cent of that is invested in deposits and good-quality debt instruments and the rest in equities. 

Jaturong Jantarangs, assistant governor of the BOT and secretary of the MPC, said short-term volatility was expected in money and capital markets from the referendum result, but the Thai central bank had tools in its pocket to cope with the situation.

Based on a recent survey of the money market, its players were relatively well equipped and there may not be much direct impact on Thailand in the short term, he said.

In the event of a Brexit, Thailand’s trade could be affected in the long term, but it is too soon to assess the scale of such impacts, Jaturong said.

At its meeting yesterday, the MPC decided to maintain its estimate for this year’s growth in gross domestic product at 3.1 per cent, likely driven by domestic demand and tourism. Next year’s growth estimate was cut to 3.2 per cent from the previous projection of 3.3 per cent after Thai exports have tended to slow down.

The MPC forecast for this year’s export contraction is revised to 2.5 per cent from the earlier estimate at 2.0 per cent. Next year, flat export growth is expected, compared with the previous forecast of slight growth of 0.1 per cent.

The MPC continues to monitor risks to the country’s financial stability and search for higher yields as a result of long-time low interest rates.

Jaturong said the MPC believed maintaining the capability to implement monetary policy was important as the economy continued to confront risks in the next periods. Such risks extend from the fragile global economic recovery, monetary-policy direction of major economies, Britain’s referendum, and risks from the Chinese financial sector. The MPC voted unanimously yesterday to maintain the policy rate at 1.50 per cent. One committee member was unable to attend the meeting.

The committee took the view that monetary policy should remain accommodative, and said it stood ready to utilise an appropriate mix of available policy tools in order to ensure that monetary conditions are conducive to the economic recovery, while ensuring financial |stability.