InfoQuest (August 05, 2019) --The risk of Thailand's economy growing below 3 percent this year remains high. Currently, fiscal policy alone is not enough, and thus monetary policy needs to be introduced to stimulate economic growth together with the fiscal approach, according to Mr. Thanawat Phonwichai, director of the Center for Economic and Business Forecasting at the University of the Thai Chamber of Commerce (UTCC). The main risk factors included: 1. Consumer Confidence Index (CCI) has fallen for four straight months and shows no signs of recovery. 2. National Business Confidence Index (BCI) has also declined for four consecutive months. 3. The drought has severely weighed on Thailand's domestic economy, investment and consumption. 4. The explosion on August 2 led to the linking of the incident to political issues, and the public thus will expect an unstable political situation later. Random risks also discouraged people from spending and investing, as well as aroused fears of violence beyond Bangkok.
"It is urgent to take necessary stimulus measures, including income guarantee policies for farmers, promotion of infrastructure investment, and proactive fiscal measures. Currently, the United States has cut interest rates and many countries around the world have employed quantitative easing (QE) to channel capital injection into their economies. Thailand should take measures to prevent the Thai baht from becoming stronger than its competitors and to devalue it appropriately. In addition, theoretically, Thailand could cut interest rates because inflation has already been below the range of inflation targeting framework (1-4 percent)," said Mr. Thanawat.
The Bank of Thailand (BOT) has taken loan-to-value (LTV) measures and warned commercial banks to be more cautious and strict in their lending. This is just like a situation that the fiscal policy acts alone while the monetary policy is a drag on it. To boost Thailand's economy by more than 3 percent this year and reduce risks, the UTCC recommended the BOT cut interest rates and take measures to bring the Thai baht down to remain 32 baht/ U.S. dollar, so as to enhance Thailand's competitiveness amid the global slowdown.
"The Federal Reserve cut the interest rate by 0.25 percent, so Thailand should follow global trend and lower the interest rate by 0.25 percent. Such reduction of interest will help stimulate the economy, but not affect the exchange rate, because the rate cut is the same as that in the United States. To shake the exchange rate, we should cut it by at least 0.50 percent," Mr. Thanawat pointed out.
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