The decision by central banks in major countries to ease monetary policy
could put pressure on Thai decision makers to ensure balanced policy implementation
to achieve steady growth.
The US Federal Reserve, the
European Central Bank and the Bank of Japan have recently injected a massive
amount of stimulus into financial markets, hoping that easing monetary policy
will lead their countries out of the economic doldrums.
Open-ended programmes by the
central banks are a departure from the past when central bankers used the
short-term policy rate as tools to encourage growth.
The central banks have
traditionally cut interest rates to boost domestic consumption. But rate cuts
have so far not produced satisfactory results.
Therefore, many recently
announced increases in asset-purchasing programmes to inject more money into
the market. The Bank of Japan, for instance, increased the size of its
asset-purchasing programme from 70 trillion yen to 80 trillion yen. And the
European Central Bank is prepared to implement an open-ended stimulus.
At any rate, it remains to be
seen whether an increase of money supply in the market or the US's
"quantitative easing" programme will shore up their economies.
The Bank of Thailand is closely
monitoring the impact on the baht from the quantitative easing. So far, the
impact has been manageable. From September 13 after the Federal Reserve's
announcement that it would increase money supply in the market for a third time
till September 19, the baht appreciated by 0.5 per cent. From the beginning of
this year, Thai baht has risen by 2.2-2.3 per cent, which is relatively low
compared to other countries.
During the previous round of
Quantitative Easing in late 2010, the dollar weakened against many currencies
including Thai baht. But this time around, Thailand has been better prepared.
In addition, overseas direct investment from Thailand has eased pressure on the
baht against the dollar.
Therefore, the injection of money
supply has not lead to a currency war as originally anticipated.
Economists who prefer to see a
weaker baht nonetheless may cite the quantitative easing to pressure the Bank
of Thailand to lower the value of the baht and lower interest rates to boost
consumption and exports.
However, the other side of the
argument is that economic recovery does not solely depend on a weaker currency,
or lower interest as a result of more money in circulation. In fact, they also argue
that with central banks increasing the supply of money this could lead to price
rises and affect people's purchasing power.
In fact, a more critical issue
affecting domestic consumption could be the end of several stimulus programmes
by the government to boost consumption, such as the first car subsidy. Some
analysts did not expect the economic growth and consumption that the government
had hoped for. Therefore, the government will have to focus public investment
on more sustainable projects, such logistic links to support growth in the long
term.
One of the plausible options to
address the economic slowdown is to adjust structural aspects. For example,
labour skills should be improved to match demands of the future. Export
competitiveness should be also be strengthened and infrastructure provided to
allow for sustainable growth.
Thai decision-makers and the
central bank will, therefore, have to monitor this phenomenon which sees
central banks in major economies seeming to promise "easy money" for
the long term. The consequences of this trend will be seen in months or years.
So, Thailand should not react hastily. In fact, the Thai economic stance has
been pretty sound, thanks partly to the cautionary measures the Kingdom
implemented after the financial crisis in 1997.
The recent phenomenon should serve
as a warning for Thailand to be prepared for any unpredictability, and that the
best way to be ready is to create sufficient immunity to enable the economy to
withstand external shocks.
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