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Published on August 20, 2007

Suchada Kirakul, the BOT's assistant governor, said the bank already expected the world's largest economy to slow down but it had not yet conducted a study on whether the US mortgage mess would play a key role in the overall economy in the US, which would also affect the global economy, including Thailand.

Observers have said the sub-prime mortgage crisis could have repercussions on some sectors of the US economy. Suchada said the sub-prime problem would affect US consumers' wealth, which would lessen their purchasing power. As a result, lowered consumption will worsen the exports of many countries.

The sharp fall in prices of sub-prime mortgages and stock and bond markets will have a negative impact. "If it affects the US's real economy, it will have an impact on the world economy, but we must wait for the situation to become stable before evaluating it, otherwise we will not get a clear picture," she said.

The assistant governor said the US market was large but Thai exports to the US had gradually declined, contracting by 0.2 per cent on year in the first half of the year as the market share plunged from 15 per cent of total Thai exports to 13 per cent. Thai exports had grown significantly in other markets, particularly the Middle East.

Suchada said, however, the recent events had already had a short-term impact as foreign capital had fled from various countries.

She was optimistic that the problem would come under control eventually as each government had injected liquidity into the system, which would effectively lessen the impact.

The Monetary Policy Committee earlier expressed concern over the global economic slowdown, which it said could reduce the country's export growth. It slashed a key rate by a quarter percentage point in the last meeting to lift domestic demand.

The committee forecast that the US economy would expand by 2.2 per cent this year, less than previous forecasts of 2.4 per cent. It revised upwards the economic forecast of other key trading partners in Europe, Japan and elsewhere in Asia. The global economy was projected to grow 4.6 per cent, more than the 4.4 per cent of previous estimates.

Krirk Vanikkul, the BOT's assistant governor, said the central bank would not introduce any new measures to curb commercial banks' foreign investment in risky financial instruments because existing measures were sufficient for risk management. "The sub-prime impact on Thai banks is contained as these investments were only 0.6 per cent of four banks' total assets," he said.

These banks could reap both gains and losses from the investments, but the central bank will monitor the banks' risk management systems and developments in the world's financial markets, he said.

Each bank' s overall investment, including foreign investment, is limited to 20 per cent of its capital, with foreign investment limited to 15 per cent of total capital. No currency may exceed 20 per cent of total foreign investment.

Anoma Srisukkasem

The Nation