InfoQuest (November 25, 2019) - Thailand's current policy interest rate stands at 1.25 percent, an all-time low in Thailand and also the lowest among countries in the region, said Mr. Wiratai Santiprapop, governor of the Bank of Thailand (BOT), the central bank of the country. Admittedly, such a low interest rate leaves Thailand in no position to adopt a strong monetary policy.
"In the wake of the global financial crisis in 2008-2009, BOT lowered the interest rate all the way to 1.25 percent from 3 percent as it had to take a drastic move to shore up the national economy. However, an interest rate as low as 1.25 percent cannot afford us to take a stance of monetary policy as strong as before, because there is little space for significant interest rate cuts," said the governor.
Meanwhile he sees no possibility of BOT employing a negative interest rate policy (NIRP) because there is no need as the economy stands and NIRP may have implications on future economic stability. At the same time, fiscal policy tends to be accompanied by a host of restrictions given the huge burden the government finance will face in the future. In addition, some government mechanisms and systems also remain barriers.
"Monetary policy will no longer be as effective as before in boosting the real economy as household debt remains high and may grow even higher due to a sluggish increase in consumption despite a rise in income," said Mr. Wiratai.
Emphasizing BOT's data dependent principle in formulating monetary policy, he said BOT will adopt appropriate monetary policy in response to the current economic situation if the economic growth trend remains lower than expected. When it comes to formulating monetary policy for a certain period, consideration must be given to every aspect from ability to spur the economy within a short term and formulate long-term monetary policy to assessment of all kinds of possible implications.
"I must reiterate here that BOT is always prepared to employ monetary policy tools if it sees signs of lower-than-expected economic conditions or trends," stressed Mr. Wiratai.
Furthermore, he believes sharper fluctuations are in store for Thailand's exchange rate in the next stage, and it is difficult to predict what the landscape of the Thai baht will unfold. For the time being, the currency is stronger than others in the region with its appreciation exceeding Thailand's economic fundamentals. As uncontrollable external factors will have a main impact on where exchange rate will move, and exchange rate fluctuations will grow sharper due to excess liquidity in global financial markets, BOT hopes the private sector can attach more importance to sounder exchange rate risk management.
"Once any change takes place in the external world, there will be a rapid, according adjustment to the Thai baht. But no one can predict how it will adjust accurately because there is no same pattern to follow. Plus exchange rate fluctuations will grow sharper due to excess liquidity in global financial markets. Against the backdrop, it is necessary to urge the private sector to formulate business plans to manage risks, in an effort to keep it responsive and prepared to exchange rate fluctuations," said Mr. Wiratai.
Moreover, the governor also talked about the economic growth trend of Thailand in 2019. According to him, as the GDP data in the third quarter of 2019 is lower than projected, BOT will re-evaluate Thailand's economic growth data in December. Based on initial estimates, the Thai economy is expected to grow slower than the previous forecast of 2.8 percent this year, largely due to foreign trade protection measures.
"Every country, not only Thailand, will face these problems. Compared with three or four years ago, global trade registers a real lackluster growth rate. It's all the more so in Asia, a region reputed as the production chain of East Asia. As part of the supply chain, Thailand has, of course, taken a hit. But Thailand is not the only victim, but all countries with an open, export-oriented economy," said Mr. Wiratai.
Looking ahead, he believes the Thai economy will perform better in 2020 as a host of positive factors will fuel a pickup in Thailand. Various government investment projects and better investments by state-owned enterprises are among these factors. As the budget bill for fiscal year 2020 will come into effect at the beginning of next year, and Thailand elected a new government in this year, the budget approval has been hindered, causing delays in all investment projects.
In addition, continuous economic stimulus measures by the government will bear fruit, and foreign investors who plan to relocate their production bases affected by the trade war to Thailand will pour more capital in Thailand, especially in EEC region. Supported by these factors, both Thailand's production and export will perform better next year than this year.
However, some factors must still be closely watched. They include international trade protectionism measures, i.e. the trade war between China and the United States. Despite the negotiation efforts of both sides, there are still many uncertainties lying ahead as the upcoming United States presidential election is scheduled for next year. Therefore, it is necessary to monitor and track which new measures will be introduced and which consensus has been reached between China and the United States, as they are the main risk affecting Thailand's economy and East Asia's economy next year.
Furthermore, the governor also commented on the economic stimulus measures taken by the government in the past period, most of which were measures that have short-term impacts, such as stimulating consumption and expenditure, and providing a price guarantee for agricultural products. According to him, introducing measures to restructure national economy, increase domestic investment and invest more in digital infrastructure should be the next focus, in an effort to improve the productivity of the Thai economy.
"Digital infrastructure is a new ecosystem that helps to improve Thailand's economic productivity. Therefore, attracting investment projects in digital infrastructure like 5G systems and Internet Of Things (IoT) will be very important in promoting economic growth and productivity in the long run," said Mr. Wiratai.
Source: InfoQuest, by Kasamarporn Kittisamphan / Rachada, translated by Xinhua Silk Road
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