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Thailand: Apisak backs rate leeway
The Bank of Thailand’s rate-setting panel does not need to follow in the footsteps of the US Federal Reserve by raising its policy rate, while the exodus of foreign investors is not worrisome, says Finance Minister Apisak Tantivorawong.
Thailand has high foreign reserves and can cushion the impact of persistent capital outflows, he said.
The slightly hawkish view of the US central bank, lifting its policy rate an expected four times this year, up from an earlier estimate of three, and the European Central Bank’s decision to end its asset buying by year-end, have triggered a foreign investor sell-off in emerging markets including Thailand, where the policy rate has been kept unchanged for more than three years.
The global economic recovery has prompted some Asean central banks to synchronise their monetary policy with the Fed. The Malaysian central bank emerged as the first in Southeast Asia to begin a normalisation process in January, while the Monetary Authority of Singapore tightened its monetary policy in April. The Philippines and Indonesia lifted their policy rates last month.
After other regional peers have shifted away from accommodative monetary policies, all eyes are focused on when the Bank of Thailand’s Monetary Policy Committee (MPC) will follow suit.
The MPC’s policy rate call is scheduled for June 20, but the market expects it will still keep the rate unchanged at 1.5%, where it has been since a 25-basis-point cut in April 2015, though the country’s economy grew at the fastest pace in five years — 4.8% in the first quarter — and headline inflation turned back to its target band of 1-4%.
Despite the sell-off in Thai bonds and equities, the country’s foreign reserves had inched up to US$212.3 billion as of June 8 from $212.1 billion in the previous week.
Deputy Prime Minister Somkid Jatusripisak said he was not worried about the capital outflows, which weaken the baht against the US dollar.
The baht on Monday continued to its retreat against the greenback, down to 32.65 from 32.38 on Friday.
Kasikorn Research Center expects the MPC will leave the policy rate unchanged at Wednesday’s meeting.
The current Fed fund rate of 1.75-2% exceeds the Bank of Thailand’s one-day repurchase rate of 1.5%, pressuring offshore capital to flow out of Thailand and depreciate the baht, said the MPC.
“If Thailand’s monetary policy diverges from the US’s, it could lead to changes in the financial market’s balance and distort it,” said the research unit of Kasikornbank.
“If the dollar’s liquidity in the Thai market is tightened significantly, it could make some interest rates lower than the policy rate, and such imbalances could affect the efficiency of monetary policy tools, opening opportunities for speculation.”
If the Thai economy manages to keep its growth momentum until year-end, the MPC is likely to reverse its monetary policy stance, it said.
Bank of Thailand governor Veerathai Santiprabhob has said an accommodative monetary policy is necessary as the economic recovery remains uneven and subdued inflation offers policy space.
According to the edited minutes of the last MPC meeting on May 16, Thailand’s economy has picked up pace, driven largely by robust exports, but the domestic recovery remains uneven, cramped by swelling low-income household debt.
Source: https://www.bangkokpost.com/business/news/1487886/apisak-backs-rate-leeway