THE BANK of Thailand (BOT) will focus more on maintaining financial stability and will keep an eye on mortgage lending, which might destabilise the country’s financial system.
Inflation is currently low due to the revolution of information and related technologies, central bank governor Veerathai Santiprabhob said in his keynote speech at the BOT Symposium 2018: The Future of Money, Finance and Central Banking yesterday. He also pointed out that the global financial system was fast changing and complicated, and that new technology has resulted in boundaries fading in many dimensions.
For instance, he said, the borders are blurring as cross-border financial transactions have risen significantly.
The line between banking and other businesses have also blurred as entrants from telecom companies, e-commerce operators and social media platforms have started providing financial services.
“This changing landscape has led to a more complicated financial system, making the central bank’s role in stabilising the financial system more challenging,” he said.
Long periods of low interest have resulted in risky behaviour as people search for higher yields, which could lead to the underestimation of risks, he said.
Veerathai indicated that the BOT might take action on the rising competition among lenders, as they may be weakening the loan criteria.
“The Bank of Thailand will consult with all concerned parties,” Veerathai said in response to a question about the current housing loan situation.
The central bank’s monetary-policy committee had earlier voiced concerns about the fierce competition for borrowers, which has led to the extension of repayment periods and lower standards for loan approval.
The BOT is also worried about a potential oversupply of condominium units priced below Bt3 million as real-estate developers are building more residential units, betting on higher economic growth and government spending on infrastructure projects.
As for the interest-rate policy, Veerathai said an expansionary monetary policy might still be needed in the medium term, even though the US Federal Reserve might increase rates again this week.
Higher US rates
The next round of Fed rate hikes would likely make US rates higher than Thailand’s by 75 basis points, which is rather unusual, as the Thai rate is usually higher than that of the US.
The current Thailand policy rate of 1.5 per cent is also very low compared to rates implemented by central banks in neighbouring countries.
External factors might make the financial market highly volatile, much like the recent turbulence in capital outflows from emerging markets, Veerathai added.
A high current-account surplus estimated at US$35 billion (Bt1.13 trillion) this year and low foreign debts have so far cushioned Thailand from an impact of capital outflows.
Escalating trade disputes between the United States and China has also been creating uncertainty, so the central bank has to closely monitor this situation, he said.
Internal factors such as economic recovery and the political roadmap are also being taken into account, he said.
“Our interest policy is data dependent, we cannot act like the US Fed, which tells the market in advance about the rate hike,” he said, adding that BOT policy rates would depend on latest economic data and Thailand, as a small economy, is more sensitive to changing conditions.
He also emphasised that the central bank has to remain independent to effectively carry out its mandate of maintaining financial stability and price stability.
Meanwhile, former central bank governor MR Chatu Mongol Sonakul said the key challenge for central bankers is finding something to do once the job of printing money is taken away.
He also pointed out that private companies have started creating their own digital currencies.
“I expected the United States and China, the world’s two largest economies, to put a brake on digital currencies, but they did not,” he said, referring to the use of Bitcoin and other digital tokens for financial transactions.