The incoming Bank of Thailand (BOT)’s governor will have to get creative and come up with unique solutions to help the country recover from the coronavirus pandemic, experts told Thai Enquirer.
Tim Leelahaphan, a Thailand economist at Standard Chartered Bank told Thailand Enquirer that the central bank has exhausted conventional approaches to recovery.
“What happens next after we lower interest rates to a minimal,” he said. “We will need new policies because there is no more room for interest rate cuts.”
The new policies could include unconventional measures such as bond buying, yield curve control measures, and quantitative easing programs that are aimed at stimulating the economy.
“The challenge will be how to make sure that these measures will actually help,” he said.
“Not everyone in Thailand has the resources to access the financial market. Some of these ‘creative solutions’ could help big corporations but do little for the SME market,” he added.
He said the soft loan policy worth 500 billion baht for SMEs and the setup of the Corporate Bond Stabilisation Fund (BSF) worth 400 billion baht are measures that were aimed to support, more than stimulate.
So far, only 10 per cent of the 500 billion baht soft loan has been disbursed while the BSF is more of a measure to support the financial market.
Interest rates were already low in December at 1.25 per cent following two cuts in 2019. Then the pandemic happened.
Now interest rates introduced by the BOT are at an all time low at 0.5 per cent.
The BOT has also lowered the amount commercial banks have to contribute into the Financial Institutions Development Fund (FIDF) from 0.46 per cent to 0.23 per cent per year for two years.
The BOT said in the past that they are not in favor of negative rates and Tim said that such possibility is still unlikely, even though the central bank is expecting the economy to go into a recession of at least 5.3 per cent in 2020.
“Going forward, there are still internal and external risks such as the possibility of a second wave of infections within the country and the resumption of the US-China trade war to think about as well.”
Legacy
In an interview to Prachachart Turakij newspaper, the departing BOT governor Veerathai Santiprabhob said that during his tenure, the central bank has tried to tackle high household debt and fix fragile problems within credit card, car and real estate loans.
Tim said he appreciated Veerathai’s efforts to promote a cashless society which should be considered as one of the important factors that contributed to Thailand’s success in containing the outbreak of the coronavirus.
He also praised the increased of cooperation between BOT and the Ministry of Finance (MOF) under Veerathai’s tenure which is a break from he past.
“We do not usually see is the BOT and MOF teaming up to come up with monetary and fiscal measures that are supportive to each other, instead of piling more pressure on top of each other in the past,” he said.
New governor
The new BOT governor should be revealed in July.
The selection committee, headed by former MOF permanent secretary Rangsan Srivorasart, will submit two names to the ministry before July 2. After that, the cabinet will have to approve the ministry’s final selection before the new governor’s term begins on October 1.
Local reports have so far pointed out to 5 names, 2 “insiders” and 3 “outsiders” who are considered to be the leading candidates. This includes:
- Paiboon Kittisrikangwan, current BOT’s deputy governor of Corporate Development,
- Ronadol Numnonda, current BOT’s deputy governor of Financial Institutions Stability,
- Kobsak Pootrakool, deputy secretary-general to the prime minister for political affairs
- Sethaput Suthiwart-Narueput, current member of the BOT’s Monetary Policy Committee
- Ekniti Nitithanprapas, director general of the Revenue Department
