In the face of a strong baht that has been Asia's best performing currency this year, Thailand will further relax rules on capital outflows before the end of the year, the central bank governor said on Friday. Veerathai Santiprabhob told Reuters in an interview that he thinks monetary policy is currently accommodative, but the bank is ready to take action if needed - and is keeping a close watch out for any further global shocks.
The Bank of Thailand (BOT)'s monetary policy committee held policy steady last week after a surprise rate cut in August, but 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," Veerathai said.
"But if we see the deterioration of economic activity beyond what we have forecast, we stand ready to review our monetary policy," he said. "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, he said.
"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", Veerathai said, adding he is hoping that will come down or at least the trend will stop.
Recent government stimulus measures are helpful, and more are expected, Veerathai said. He declined to give details as to exactly what he expected, but said it was not only about spending money. On September 25, the BOT 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%. In April-June, 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 and is ready to deploy measures on "undesirable inflows" to make sure that the baht's movement does not hurt the economy, Veerathai said.
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