Central Bank: monetary policy will remain accommodative
Having recently signaled that interest rates would soon be rising, Bank of Thailand Governor Veerathai Santiprabhob told reporters last week that rate rises are unlikely to be continuous, a viewpoint that is likely to please the business community and investors.
“In the medium term, accommodative monetary policy is still needed. It’s a misunderstanding that if rates increase, they will keep rising as in other countries,” Veerathai said.
Last week, the central bank’s monetary policy committee left the policy rate unchanged at 1.5 percent, but two of the seven members voted for an increase. The governor said that any decision to raise rates would be “data dependent.”
As a relatively small economy, Thailand is more sensitive to changing economic, trade and investment conditions, Veerathai said.
Factors that could affect the committee’s view include the developing trade war between the United States and China, inflation, and economic growth. Growth has been steadily accelerating but not at a pace that has caused concern among most economists. Inflation has picked up steam but is still considered low.
The governor said that interest rate differentials between Thailand and foreign countries did not concern him. Several analysts had speculated that the differentials were a factor. Rising interest rates in some larger economies could lead to capital flight from the Kingdom as investors seek better returns.
The Bank of Thailand’s main concern is stability, Veerathai said, and the bank is closely monitoring mortgage lending for signs of a real estate bubble.
Potential problems are emerging in the lower-price condominium market, which has been hit by oversupply. Developers have been on a building spree in anticipation of strong economic growth and government infrastructure projects making properties in some areas more desirable.
More daunting, however, is that the global financial system is changing fast and becoming more complicated, Veerathai said. New technology is breaking down many traditional boundaries, especially between banking and non-banking entities.
“This changing landscape has led to a more complicated financial system, making the central bank’s role in stabilizing the financial system more challenging,” said the governor.
“I expected the United States and China, the world’s two largest economies, to put a brake on digital currencies, but they did not,” he said, referring to crypto-currencies and other digital tokens used for financial transactions.
The Bank of Thailand has also begun using a digital currency for its transactions with commercial banks.