Declining growth rates foreseen for 2013-2014: BOT
Bank of Thailand's Monetary Policy Committee (MPC) projected the Thai economy in 2013 and 2014 to expand less than previous assessment, from longer-than-expected moderation in private consumption and exports, coupled with a risk of delay in planned government stimulus.
Nevertheless, the overall pace of economic slowdown so far was close to the committee's previous assessment.
In the minute of the August 21 meeting when six MPC members resolved to maintain the policy rate at 2.5 per cent, the committee viewed that the economy continued to benefit from accommodative financial conditions, which would lend support to economic momentum to some extent. Inflationary pressure eased from softening domestic demand and subdued production costs, with lower-than-expected headline and core inflation in July.
Some members expressed concerns over the impact of potential default in automobile loans, which could adversely affect prices of second-hand cars, values of collaterals, and potentially the lenders. While prices of second-hand cars have recently fallen noticeably, members noted that second-hand car loans still accounted for a small share of automobile loans. A significant portion of first-car loans has also been extended to car dealers rather than consumers, thus limiting wider impact. While agreeing that the risk was not systemic, the MPC members saw the need to broaden surveillance to cover additional segments of credit markets. For instance, lightly-regulated car-for-cash loans have allowed easy access to finance based only on registration certificates, while saving cooperatives which have extended substantial loans to civil servants, were not under the central bank's regulatory domain.
The MPC discussed the likely impact of global market volatility on the Thai economy after the start of QE tapering. Some members identified two important determinants of asset allocation to emerging markets, namely (1) Fed communication regarding the speed, procedure, and strategy in winding down large-scale asset purchase program, and (2) underlying economic fundamentals in individual emerging economies, which may also have market implications including in Thailand. Other members emphasized exchange rate expectation as the key driver of capital outflows from emerging markets in recent months, as economic fundamentals usually changed too slowly to justify large swings in market sentiments. Moreover, some foreign investors may be inclined to consider Asian markets collectively as a group, with little discrimination based on fundamentals. Members agreed that a close monitoring of capital flow developments was warranted. One member noted in addition that volatile exchange rate may put upward pressure on inflation in the periods head.