Thai central bank to act on external shocks: Governor
Thailand's central bank is keeping its powder dry on interest rates and is ready to act in the event of external shocks including a sustained decline in oil prices and even slower growth in China, Governor Veerathai Santiprabhob said.
The Bank of Thailand has "limited scope" to reduce rates because borrowing costs are already near a record low but has "reserved some space" to act if needed, he said. Veerathai and the other six members of the bank's Monetary Policy Committee voted unanimously Feb. 3 to hold the rate at 1.5 percent for a sixth straight meeting.
"Even though we say that for now we see limited need for further easing of monetary policy, it doesn't mean we shut the door for the possibility for easing in monetary policy if the environment doesn't turn out as we expected," Veerathai, 46, said Monday at his office in Bangkok. "If such a shock occurs coming from outside, the MPC would like to have some space to be able to become more accommodative."
While Thailand has benefited from the slump in oil prices because it's a net importer of energy, the nation's exports have tumbled for three straight years as Chinese demand cooled. Asia's biggest economy was dethroned by the U.S. as the biggest overseas market for Thai goods last year, but remains the largest source of visitors to Thailand.
China's foreign reserves have fallen to their lowest since 2012 as policy makers combat a weakening yuan amid slower economic growth, plunging stocks and increasing outflows. Veerathai said further market volatility could potentially threaten the pace of economic reform in China as that country's economy shifts toward services and consumption.
Thailand is in a relatively better position than other Asian emerging markets to cope with volatility because it has solid fundamentals, including a large currentaccount surplus, said Kozo Hasegawa, a currency trader at Sumitomo Mitsui Banking Corp. in Bangkok. The baht rose to a three-month high Tuesday, touching 35.390 per dollar, after Veerathai said Thailand's high foreign reserves and low debt levels provide "a good buffer" against capital outflows.
"We also need to be concerned about tail-risk events," Veerathai said, citing the potential for a prolonged period of low oil prices and continuing instability in China's financial markets. Thai policy makers are also waiting to assess the impact of government stimulus spending and the progress made on high-speed rail networks and other infrastructure, he said.
"Many projects have been long delayed in Thailand partly because of the political difficulties that we have had," Veerathai said, referring to military coups in 2006 and 2014. "The other part relates to political interference, but this will depend on the ability of the current government to make tough decisions and start the bidding process. Once these projects go through the bidding process, there will be high degree of assurance that they will continue to stay and get completed as planned."