BOT could shift to forex-rate policy: CIMB
Businesses and investors have been advised to prepare for a new context of monetary policy, as the Bank of Thailand might use the foreign-exchange rate to fuel the economy instead of interest rates.
This means that the central bank is unlikely to lower interest rates further while inflation is not a major issue but the export slump is, said Amonthep Chawla, head of research at CIMB Thai Bank.
After China devalued its currency recently, a number of countries followed suit to keep their exports competitive, and CIMBT expects Singapore to be the next to join this trend.
Meanwhile Thailand is not seeing its economy improve even though the BOT lowered its policy interest rate twice in the first half of this year.
Amonthep said that as a result, the central bank could also shift from adjusting interest rates to adopting an exchange-rate policy.
He said doing so could help Thailand escape the middle-income trap, the liquidity trap, the confidence trap and the demography trap.
Pointing to the liquidity trap, he noted that the lowering of interest rates in the first half failed to enhance the demand for loans among businesses or consumers. Therefore, lending did not serve as a trigger for economic growth.
He said businesses should use this time to reduce imports and obtain their raw materials here in Thailand instead.
Using local content would stimulate local employment and investment, thus boosting the overall demand for goods as well as services.
Meanwhile, the government should consider waiving duties on imported machinery and support research and development. Otherwise, exporters will not focus on adding value to their products while enjoying the effects of a weaker baht, which could become another trap for Thailand in the future, the economist warned.
Currency war
CIMBT has revised this year’s exchange-rate target from Bt34 against the US dollar to Bt37, but the baht could weaken to 40 if the currency war led by China has a severe influence on Thailand’s trading partners.
He said the baht was likely to appreciate again next month if the US Federal Reserve postpones increasing its policy interest rate, as capital would flow back into Thailand.
The bank has also lowered its economic-growth forecast for this year to 2.5 per cent from 3.3 per cent.
