Thailand facing 3 core risks: BOT policy committee 

The concerns were pinpointed in minutes of the MPC meeting on November 18, which were made public on Wednesday (December 2).

The minutes raised concern that the rising baht would hit the fragile economic recovery by eroding export profits, in turn affecting investment and employment. The baht is being lifted by capital inflows to Thailand and other emerging markets, driven by monetary easing and higher risk appetite in global financial markets. The baht was also being pressured upwards by long-term structural challenges of low investment causing a high current account surplus, together with the home bias behaviour of Thai investor, it said. 

The MPC recommended considering additional short- and long-term measures to rein in the baht.

The panel was also concerned the slow and uneven economic recovery could undermine the future stability of the financial system.

Business were more financially fragile, particularly in the tourism sector where economic activity remains much lower than pre-pandemic levels. Meanwhile, SMEs had limited access to credit due to higher credit risks.

Households remained vulnerable given high household debt and the slow recovery in income, which affected their ability to service debts. Nevertheless, credit assistance measures had partially relieved liquidity constraints on businesses and households affected by the pandemic, said the minutes.

The rising household debt-to-GDP ratio and slow recovery in incomes would delay the deleveraging process, which would have adverse impacts on consumption and economic growth in the medium term, according to the minutes. Household debt to GDP rose to 83.8 per cent in the second quarter this year.

Debt restructuring and economic restructuring should thus be accelerated to boost recovery in incomes in the post-Covid environment. Meanwhile an uneven recovery in income among sectors would result in worsening inequality problems and limit sustainable economic growth in the long term. Policy coordination among public agencies would play an important role in distributing liquidity where it is needed, such as by coordinating credit and financial measures implemented by the government and the Bank of Thailand. The MPC viewed that commercial banks, specialised financial institutions, and the Thai Credit Guarantee Corporation, were all playing crucial roles in curbing credit risks. This would help facilitate a broader distribution of ample liquidity in the system and support business adjustment to the post-Covid environment. 

The committee voted unanimously to maintain the policy rate at 0.5 per cent to support economic recovery while placing emphasis on the use of more targeted measures.

It identified three core risks to the Thai economy going forward: 

1. Domestic political uncertainties which could affect consumer and investor confidence. 

2. Progress in admitting foreign tourists to Thailand, which would likely be gradual depending on the Covid-19 situation in foreign countries and also vaccine development. 3. Heightened financial vulnerability of households and businesses following the phase-out of the support measures.