Surplus liquidity, measured in terms of disposable liquidity, increased two months in a row. It was Bt1.33 trillion last October, compared with just Bt860 billion in November 2005, the central bank said in its quarterly inflation report released this month.

Disposable liquidity is parked in government and central-bank bonds, investments in the repurchase market and net foreign assets. Of the total Bt1.37 trillion in free liquidity, about Bt700 billion was invested in securities, Bt500 billion in net foreign assets and the rest in repos.

"The slow-down in loan growth has been caused by dampened domestic demand, particularly sluggish private investment. The banking system's liquidity is still lofty," said the report.

The excess liquidity is also reflected in the slipping loan-to-deposit ratio, which was 86.85 per cent last November, down from 87.19 per cent in the previous month and well off the 90.35 per cent recorded in November 2005.

A BOT source cautioned that the higher disposable-liquidity figure did not totally indicate the increase in excess liquidity in the banking system, because the liquidity was partly absorbed by the central bank. The increasing disposable liquidity showed up as growth in assets on banks' balance sheets.

"The liquidity actually did not rise like the data show," he said.

In last year's fourth quarter, commercial banks ended their war for deposits that had marked the middle of the year, because the cost of deposits had risen close to the returns in the money market.

Unchanged reference deposit interest rates have slowed the transfer of funds from savings accounts to fixed accounts, which offer much high returns.

As of last November, savings deposits made up 36.6 per cent of total deposits, close to the ratio for the third quarter. But the ratio had declined from 41 per cent and 37.6 per cent in the first and second quarters, respectively, says the inflation report. Depositors have shifted their money into long-term fixed-deposit accounts, which provide higher returns than do shorter ones.

Six- to 12-month deposits, including eight- to 10-month special deposits, increased steadily to 17.7 per cent of total deposits last November, compared with 7.8 per cent at the end of 2005.

However, the expected cooling down of inflation over the next 12 months did help boost the real 12-month deposit interest rate slightly to 1.96 per cent last month. The real minimum lending rate was 4.19 per cent. 

Anoma Srisukkasem

The Nation