Prior to making any changes to its benchmark rate the central bank first plans to relax capitol outflow rules. Substantially increasing capitol outflow ceilings by years end.
The Bank of Thailand governor Veerathai Santiprabhob told Reuters about the outflow policy change in an interview last week.
This will allow investors such as mutual funds invest abroad he said. The limit that allows Thai individuals to directly invest overseas will also be increased, he also said.
Mr Veerathai said he thinks monetary policy is currently accommodative. However the central bank is ready to take action if needed. — and he will be keeping a close watch out for any further global shocks.
The Monetary Policy Committee held its benchmark rate steady last week after a surprise rate cut in August. The BOT downgraded its 2019 growth outlook amid heightened global risks and a strong baht.
“For the current projections, I think that the current policy rate is accommodative,” Mr Veerathai said.
“But if we see the deterioration of economic activity beyond what we have forecast, we stand ready to review our monetary policy.
“If the global economic condition deteriorates much further, that would be one of the main factors.
I think that’s the largest factor.”
Risks to financial stability are still a concern for the policy committee
“When interest rates have been low for a long time, it has some impact on the leverage of the whole economy. … We need to be mindful of that impact on financial stability as well.”
High household debt levels – at 78.7% of GDP at the end of June – are “not healthy”, Mr Veerathai said, adding the central bank is also hoping that will come down or at least the trend will stop.
Recent government stimulus measures are helpful, and more are expected, he said. He declined to give details as to exactly what he expected, but said it was not only about spending money.
On Sept 25, the MPC kept its benchmark interest rate unchanged at 1.50% — just a quarter point above the record low.
But it cut its 2019 economic growth forecast 2.8% — which would be the lowest since 2014 — from 3.3%, and predicted falling exports. Last year’s growth was 4.1%.
Thailand’s Economy Weakest in Five Years
In the second quarter, Southeast Asia’s second-largest economy expanded just 2.3%, the weakest pace in nearly five years.
The rate cut did little to curb the baht’s strength and with low inflation and weak growth. Some analysts expect further rate cuts later this year.
The central bank will monitor the movement of the baht closely. It is ready to deploy measures on “undesirable inflows” to make sure that the baht’s movement does not hurt the economy, Mr Veerathai said.
Before the end of the year, the central bank will announce more liberalization on capital outflows for Thai investors. Allowing them to invest more “MONEY ABROAD” to help better balance inflows and outflows, Mr Veerathai said.
There will also be measures that allow exporters to have more flexibility in keeping foreign currencies abroad. Instead of having to bringing the currencies back to Thailand, Mr Veerathai said.
The baht is Asia’s best performing currency this year. Up nearly 7% against the dollar, putting further pressure on the export-driven economy.
Mr Veerathai said he did not expect headline inflation to be negative and it should return to the central bank’s 1-4% target range next year.
The central bank, he said, will also decide at the year-end whether it needs to impose a debt-service ratio limit, something that has been mooted as a way to rein in bad debt.