QE3 to widen BOT's losses: Supavud
Phatra Securities' managing director Supavud Saicheua expressed concerns over flexibility of Thailand's monetary policies, following monetary easing in several major economies.As a commentator of a research on "central banks’ finances and policy connotation" at BOT Symposium 2012, Supavud said that it is worth considering if quantitative easing by major economies particularly the US’s QE3 would worsen the Bank of Thailand’s finances and put downward pressure on the Bank of Thailand’s policy flexibility.
"Will the US Federal Reserve’s endless quantitative easing, to keep interest rate low and keep dollar weak, affect the Bank of Thailand’s action? As BOT is running with a loss, will this minimise possible monetary options?," he asked. He also asked if foreign exchange rate stabilisation would eventually spur inflation.
Weak dollar and liquidity injection is encouraging investors to put excess liquidity elsewhere, including Thailand. To prevent a sudden appreciation in the Thai baht in light of capital inflows, the central bank needs to print more baht to absorb dollar.
According to Supavud, foreign investors’ holding in Thai bonds is now tuned at Bt700 billion, from Bt100 billion years ago. After the QE3 was announced, the holding increased by Bt20 billion. He asserted that this highlights that fact that Thailand’s policy rate is high enough to attract capital flows.
Supavud has been advocating a policy rate cut.
Nomura Global Economics expected further capital inflows to Thailand amid global risk backdrop. Coupled with improvement in domestic factors, this will support further baht appreciation against US dollar. It expects the Thai baht to the year at 30.8 per dollar, from 31.5 at the end of last year. While baht should strengthen to 30.4 next year, it would hit 30 at the end of 2014.
QE3 is likely to spur capital inflows into Thailand as seen in previous QE episodes, Nomura added. Foreign investors invested about US$2.1 billion in Thailand’s equity market from the beginning of the QE1 programme in December 2008 till its conclusion in March 2010, and during QE2 (which started in November 2010) they invested about $2.0bn between September 2010 (after Fed Chairman Bernanke‟s Jackson Hole speech) and June 2011.