BoT chief plays down possibility of more rate cuts

Veerathai says interest-rate cuts remain on the table, but policies that can get funds to specific sectors ‘can be more direct and targeted’

by BLOOMBERG

BANGKOK • Thailand’s current monetary policy is accommodative enough and further interest-rate cuts would be less effective in reviving the economy from its pandemic-driven downturn, the outgoing central bank governor said.

While all options, including interest-rate cuts, remain on the table, policies that can get funds to specific sectors “can be more direct and targeted, and more appropriate for the current situation”, governor Veerathai Santiprabhob (picture) said in an interview yesterday with Bloomberg Television’s Haslinda Amin.

“The problem now is not so much on illiquidity. I think we have to focus more on insolvency problems that will occur across different sectors and segments of the economy,” he said. “The policy rate is already quite low.”

Thailand’s economy is forecast to suffer one of the biggest contractions in Asia of more than 8% this year, and central bankers are running low on ammunition to deal with the fall-out. The Bank of Thailand (BoT) has brought its benchmark interest rate to a record low 0.5% in three interest-rate cuts this year, and has been on hold since June as it tries to pre- serve policy space.

Veerathai, 50, will leave the BoT at the end of this month when his five-year term ends, handing over to Sethaput Suthiwart-Narueput, a member of the Monetary Policy Committee.

While the bank has been studying unconventional monetary policy options such as yield-curve control, Veerathai said yesterday he doesn’t think this is currently necessary.

“We have to assess the situation on a regular basis,” the governor said. “If there is steepening of the yield curve to the point that it might affect the economic recovery, then the yield curve control might come in.”

Veerathai will leave the bank at a time of heightened uncertainty about fiscal policy following the sudden resignation last week of Finance Minister Predee Daochai less than a month into his term. The governor said yesterday that he’s “not ready to take up any position” after some local media reports said he would be approached to replace Predee.

Other key comments from Veerathai’s interview:

• On the baht: The currency is now more fairly valued, though it’s likely to be more volatile than in the past. The baht is down 4.6% against the dollar so far this year

• On fiscal policy: Given the severity of the downturn, the government should consider relaxing a rule limiting public debt to 60% of GDP. The current limit “is not high by international standards, it’s not high compared to other emerging markets in the region”, he said. If the government can focus spending on sectors that create employment, particularly in rural areas, “that’s more important than the debt-ceiling limit”.

A former International Monetary Fund economist with a doctorate from Harvard University, Veerathai was the BoT’s youngest leader in four decades when he took office in 2015. During his term, he dealt with a military government, US-China trade tensions, currency volatility and the pandemic. — Bloomberg