The Bank of Thailand will monitor the US Federal Reserve's imminent announcement on the state of the US labour market, while the Kingdom's current policy interest rate is still considered adequate to support the recovery of the economy - and the rate's
Chirathep Senivongs Na Ayudhya, spokesman for the central bank, yesterday said nobody knew for sure when the Fed would increase its policy rate, even though US economic indicators such as production and employment rates had increased.
However, there is a question over the true nature of the declining US rate of unemployment after the financial crisis, given its lack of effect on inflation. The market will have to wait for Federal Reserve chairwoman Janet Yellen’s speech today (late Friday, Bangkok time) and her comments on the US jobs market, he said.
The Federal Open Markets Committee said this week that the Fed could hike interest rates sooner than predicted because the labour market was healing more rapidly than had been expected.
“Even though the US unemployment rate is gradually reducing and is on an improving trend, there is a possibility that an unemployment rate that does not cause inflation after a financial crisis might not reflect its true nature,” Chirathep said. “Therefore, it is hard to stick with an unemployment rate that defines when the interest rate should increase.”
He explained that there were many factors that could influence the Fed’s view of the jobs market, such as unemployment-rate pressure on wages and the state of the housing market. The market and the Bank of Thailand will, therefore, have to continue to monitor the US situation.
Turning to Thai monetary policy, the spokesman said the prevailing policy rate was still suitable for the current recovery of the economy, and that there was no worry in terms of financial stability.
The present relaxed monetary policy does not pose undue pressure on businesses, since their interest costs are relatively low, he said.
Meanwhile, household debt is expected remain at the current level during the next period, although there is a chance that it will decrease because of the potential reduced use of “populist” government policies, and also because commercial banks are more careful about giving out loans – and consumers about asking for them – he added.
“Monetary policy is being applied gradually, therefore it can be predicted and plans can be formed to cope with its consequences, while the current interest-rate burden on business and households does not pose any pressure on financial stability,” he said.
As for the economy, Chirathep said the appointment of the new prime minister this week was in accordance with the road map of the military’s ruling National Council for Peace and Order, and the junta leader taking the PM post had been expected. However, the new government’s policies were still to be seen.
Consumption and public investment will, however, continue to boost the economy, which will remain on an upward trend, said the spokesman.
“The economy in the year from July should be able to grow in line with its potential, and will recover as a result of the clarity in fiscal policy, and the increase in consumption and public investment.
The Bank of Thailand wants to support the economic push from fiscal policies by trying to keep the government account deficit at 2 per cent of gross domestic product, in order to help stimulate the economy,” he said.