Govt urged to borrow domestically
The Bank of Thailand (BOT) expects the euro-zone debt crisis to be prolonged despite the outcome of the European Union summit last week.The central bank, meanwhile, would support the government's mobilisation of funds via the domestic market to finance infrastructure projects worth Bt2.2 trillion, as such a move would help absorb excess liquidity, Governor Prasarn Trairatvorakul said yesterday.
He said that although agreements had been reached at some levels at the recent EU summit, the EU's problems were "sophisticated" and therefore required time to resolve. "So, the EU's debt crisis is expected to stay with us for a long time," he said.
He said Thailand was now faced with a lesser degree of inflationary risk, as shown in a lower risk outlook for inflation when compared to that for economic contraction.
This results from the global economic slowdown, especially in the United States and the EU, and dampening commodity prices, including for oil fuel, which together lessen inflationary pressure.
Prasarn said domestic demand was still growing well and financial institutions' lending growth was at a high level.
"[However,] this is an issue that we have to keep monitoring," he said, adding, "The policy rate is now in economic-stimulus mode, standing at 3 per cent, as we estimate that inflation this full year will average 3.3 per cent. So, this [policy] rate is still favourable."
As to the recent government’s announcement that it may need Bt2.2 trillion to fund infrastructure projects, he commented that the country's financial system was now in a relatively liquid position. Borrowing money in the domestic market would help drain excess liquidity, he added.
"Over the past few years, Thailand has been flooded by capital inflow, resulting in a burden on the BOT in absorbing the liquidity. If the government were to borrow domestically, this should help unload the central bank's burden," the governor said.
The central bank estimates there will be a net positive capital account next year. However, the global financial markets are now very sensitive and extremely responsive to news, he said.