Thailand: BoT not planning big change after Fed policy shift

  • The Bank of Thailand is not looking to make a big change to its already flexible inflation targeting framework after a landmark policy shift by the US Federal Reserve, governor Veerathai Santiprabhob said on 28 Aug 20.
  • The central bank believes its current framework is flexible enough to ensure medium-term price stability, he said.
  • However, the sweeping change by the Fed in its approach to its dual role of achieving maximum employment and stable prices could cause more financial market volatility, Mr Veerathai told Reuters.
  • The Bank of Thailand targets headline inflation in a range of 1% and 3%.
  • The US central bank believes the new framework will better align with new economic conditions and allow it to conduct monetary policy in a transparent and effective manner, said Titanun Mallikamas, assistant governor of the monetary policy group at the Bank of Thailand.
  • But for Thailand’s central bank, the monetary policy framework currently in use allows flexibility in pursuing multiple objectives, said Mr Titanun.
  • “For the Bank of Thailand, under the flexible inflation targeting framework, the Monetary Policy Committee (MPC) pays attention not only to ensuring price stability over the medium term, but also endeavour to stabilise economic growth around its potential and preserve financial stability,” he said.
  • In the current context, flexible inflation targeting allows the use of policy instruments other than the policy interest rate, such as financial sector measures that can include soft loans and debt restructuring, to ensure that growth, inflation and financial stability objectives are met, said Mr Titanun.
  • The MPC and the Finance Ministry have mutually reviewed the appropriate inflation target and agreed to propose headline inflation within the range of 1-3% as the new policy target.
  • The new target replaces the use of an annual average of headline inflation at 2.5% with a tolerance band of plus or minus 1.5% points, which was in place since 2015.

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