Thailand: BoT keeps options open

  • The Bank of Thailand says the impact of a policy rate cut to tame offshore fund inflows would be limited and it stands ready to enact additional measures if recent moves fail to contain the THB.
  • Interest rates are not the main factor drawing foreign fund inflows, as seen by the influx of funds to Thailand despite the country’s benchmark rate being lower than the US’s, said governor Veerathai Santiprabhob.
  • The central bank considers all factors prudentially when any measure is implemented because such measures come at a cost and have side effects on the economy, the governor said.
  • For instance, if the central bank imposes so harsh measures that stall foreign fund inflows, local bond yield will spike and financial cost of the government and corporates in issuing bonds will increase.
  • The central bank’s concerned that the US will add Thailand to a watch list of currency manipulators also discourages aggressive intervention to curb the THB’s strength.
  • Nevertheless Mr Veerathai said the central bank is leaving the door open for a policy rate cut in the event that economic readings fail to meet projections.
  • Furthermore, Mr Veerathai said the central bank plans to discuss inflation targeting with newly installed Finance Minister Uttama Savanayana.
  • The inflation targeting framework could be tweaked in line with current economic circumstances.

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