Bank of Thailand Governor Prasarn Trairatvorakul comments on the impact of the global slowdown on the nation’s economy, inflation and the central bank’s deliberations before deciding on interest rates. He spoke in an Oct. 13 interview in Tokyo.
On the impact of the global slowdown on Thailand:
“We are not immune. The first half was exceeding our expectations in terms of recovering from the floods but in the second half, there are already signs of moderation, particularly on the exports side. Exports are coming down but domestic demand is still very strong to compensate.
‘‘For exports, the direct impact from the euro zone developments is not that big because we only export 10 percent of our total exports to Europe and the exports items are not as sensitive to the conditions. But the indirect impact is significant. We trade a lot with our Asian partners and they also trade with the euro zone so the slowdown in China, the slowdown in other Asean economies, it has some bearing on our total exports. So the export figure will come down quite significantly.
‘‘But domestic demand so far is very strong caused by domestic consumption and investment. Consumption partly because of the higher income generated by general good conditions in employment and partly by some stimulating packages by the government. Investment in the first half certainly was very strong by reconstruction and restoration from the flood. We will monitor whether this momentum will carry on.’’
‘‘We still have a growth rate’’ forecast ‘‘of 5.7 percent for the whole year.’’
‘‘It is quite benign, both from demand and cost-push. The latest forecast for headline for the whole year is 2.9 percent and core is about 2.2 percent. That’s within our target. At the moment, we still use the core range of 0.5 percent to 3 percent.’’
On risks to Thailand:
‘‘The situation in the world economy is top of the agenda because the Thai economy is an open one. There are repercussions in the financial markets with capital flows. At times with these news, there could be some volatility in the capital markets, the foreign exchange market, and we also anticipate and we also observe there is volatility in capital flows into the Thai market. Our current assessment is it’s not as serious as in 2010 because at that time we had quite a significant surplus in the current account.’’
On asset bubble risks:
There are ‘‘no alarming signs yet although the Thai stock market is one of the best performers in the region but there is fundamental support because corporate earnings were so good.’’
In ‘‘real estate, we are monitoring but no alarming signs.’’
‘‘The baht has no serious pressure because one very successful measure we introduced two years ago and produced results is the encouragement of Thai businesses and individuals to invest overseas.’’
The baht’s gains have not been ‘‘drastic and within the range of 2 to 3 percent appreciation,’’ and there has been ‘‘no intervention at all from the central bank.’’
There are no signs of asset bubbles ‘‘but we are not complacent.’’
On whether the Thai economy needs monetary stimulus:
Policy makers will consider the magnitude of the impact of the global slowdown on the Thai economy and credit growth when deciding to cut interest rates, Prasarn said.
At the last MPC meeting, ‘‘one interesting point was about credit extension and the behavior of banks. They compete for deposits, they keep on introducing attractive deposit rates.’’
The majority of MPC members ‘‘said if you cut the policy rate, it’s not going to be transmitted because they are competing for deposits because credit extension is still very high.
‘‘When you introduce any cut in the policy rate, you have to be quite confident that the intermediary or the market will transmit your policy rate.
‘‘At the moment, we don’t observe any risk premium generated in the Thai market. In other words, we don’t see necessity at the moment to use monetary policy to restore confidence because the market is already quite confident.
‘‘At this time, we don’t observe any signs’’ that confidence is low.
‘‘If the slowdown in the world markets curb exports to the level that Thai businesses’’ suffer, that’s when ‘‘you have to step in. Exports this year will slow down somewhat, so we are watching on that.’’
‘‘At this time, all these indicators, indexes, point to really balanced conditions. You have headline inflation of 2.9 percent and a policy rate of 3 percent. It’s very balanced. You look at the potential growth and the actual growth. It’s on balance. You looked at inflation pressures, very benign. In other words, you are running at full potential. We are now at a sweet spot.’’
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