BOT says “uncertainty” defines Thai economy in 68
The Treasury expects GDP in 68 to grow by more than 3.% Accelerate to solve 3 main problems in the short term and open 4 approaches to support the Thai economy to grow in the long term. The BOT stated that uncertainty is the main factor affecting the Thai economy. Accelerate to solve the problem of not being able to access credit, aiming to reduce risk to help banks lend. The Stock Exchange of Thailand revealed 3 strategies to accelerate the creation of a capital market for the public and equality. Promote 3 Flagship projects to drive sustainable growth in the Thai capital market.
The overall Thai economy is still facing risks from both internal and external factors. According to economic gurus' forecasts of GDP growth this year, GDP will expand by 2.4-3%.
Journal of Finance and Banking Had a special interview with the economic commander Pichai Chunhavajira, Deputy Prime Minister and Minister of Finance Along with two generals of the Thai money and capital markets Dr. Setthaput Suthiwatnarueput Governor of the Bank of Thailand Assadej Kongsiri, Director and Managing Director, Stock Exchange of Thailand To delve deeper into the Thai economic picture in 2568, including both short-term and long-term economic policies that will enable the Thai economy to continue to grow strongly.
“The word “uncertainty” is relevant to the situation in 2018. 2568 is the most because it is a very difficult thing to assess. It is not like risk. We still know what factors will come with risk, even though we are not sure how much. But uncertainty is something that we do not know what will happen.”
Dr. Setthaput Suthiwatnarueput Governor of the Bank of Thailand (BoT) Interview on “Banking Finance” That the word that will most clearly reflect the state of the Thai economy in 2568 is “Uncertainty” Because there is a high level of uncertainty from many factors, both from geopolitical issues and uncertainty regarding the economic policies of important countries, such as the policies of US President Donald Trump, where it is still unclear what the new Trump cabinet that will come in to administer the administration will be like, what policies it will have, and importantly, how other countries will respond to the policies that are issued.
“The word ‘uncertainty’ is most relevant to the situation in 2568 because it is very difficult to assess. It is not like risk. We still know what factors will come, even though we are not sure how much. But uncertainty is something that we do not know what will happen.”
The BOT has projected that the Thai economy will expand by 2568% in 2.9 and 2567% in 2.7. This is an estimate based on a base case that does not include uncertainties from the US economy under President Trump. This is consistent with central banks in many countries that share the same view that the Trump administration's policies are uncertain and must be waited and seen.
“The BOT will review its economic forecast for Thailand again in April 2568, when the various factors will be clearer.”
However, although it is still unclear how the Trump administration will affect the Thai and global economy, it can be assessed from the previously announced policies, with 3 issues that need to be prepared for in 2568.
The first is the commercial tax (Tariff) It will definitely happen, but it is still unclear which countries it will affect and at what rate the tax will be. The second issue is tax cuts in the United States. That will result in a wider US fiscal deficit. The third issue is the policy on illegal immigrants. This will have an impact on the US labor market where wages may rise.
However, these three stories reflect that inflation in the United States is likely to increase and the chances of the US Federal Reserve cutting interest rates further may not be very high, which shows the outline of the impact on the financial market and the economy this year. It is difficult to see when or how much it will happen, especially the impact on the trade sector, which in the first half of 2568 is not much, but we have to follow the second half to see what the impact will be.
“The US is a big country. Its one-country policy has side effects on a small country like Thailand. What is clearly seen is that when the US has a trade policy with China, China cannot export. Chinese products flow into other countries, including Thailand, which affects Thailand itself and the trading partners that Thailand exports to.”
Dr. Sethaput added that implementing monetary policy under uncertainty must be stable, “Robust Policy” and suitable for many situations because it is unpredictable what will happen. Therefore, the policy must be able to support all situations. The components of a stable policy are forward-looking policies or Outlook Dependent, which do not only look at the data that comes out because the data may have disturbing factors. If we respond to the data too much, it may cause the policy to be wrong.
“We have lessons from other countries that focus on data only. As soon as the data comes out, the market predicts what the policy will be like. But when the actual policy comes out not as expected, it creates more volatility in the market. Instead of reducing volatility, the policy increases it. And another thing that the BOT doesn’t want to see is sending signals to the market to be aware of the policy trend too much, or Forward Guidance, because doing this can be dangerous.”
Dr. Sethaput said that the BOT emphasizes the use of monetary policy in conjunction with other policies because it does not want every situation to be dependent on monetary policy alone, to the point where interest rates are the only tool that must answer many questions, including economic growth, inflation, and currency exchange rates. If a single tool answers all questions, it will be difficult. Therefore, interest rate policy must be used in conjunction with other policies, which is the origin of the BOT's debt resolution measures.
“Amidst high uncertainty, focusing on one policy direction may not be appropriate. We need to wait and see the factors clearly before rushing to shoot. Our interest rates are not high compared to other countries. In the world, only China, Japan, and Switzerland have lower interest rates than Thailand. The fact that interest rates are not high means that the room to reduce interest rates is limited. Therefore, we need to save our bullets well. We need to wait and see how to use them. We need to be careful when there is fog or uncertainty.”
However, the implementation of monetary policy will consider 3 main elements: economic growth rate, inflation stability, and financial system stability. It must maintain a balance among all 3 matters. In terms of growth, the economy is starting to gradually approach its potential growth level of 3%, as the BOT has projected that it will grow by 2.9% in 2568. As for inflation, although in 2567 it is lower than the target range of 1-3%, in 2568 it is expected to be higher than 1%. However, low inflation may be a good thing because Thailand has a problem with high cost of living in a situation where people's incomes are not growing.
In terms of financial stability, there is still a concern about household debt, which, although it is gradually decreasing, is still higher than the level that the BOT wants to see, according to a study by the Bank for International Settlements (BIS), which stated that household debt should not exceed 80% of GDP.
“Monetary policy is not fixed and ready to be adjusted when the situation changes. The use of interest rates must weigh and balance all three issues. The lesson learned is that it is not good to be too attached to anything. For example, the inflation framework abroad is set at 3%, which has become a sacred number that contradicts what is said that the policy must be stable, flexible, and appropriate for the situation. The world is already volatile enough. Do not let the policy exacerbate the volatility.”
As for the currency policy, Dr. Setthaput said that the currency does not have much effect on the volume of exports. The volume of exports depends on the economies of trading partners. If the economies of trading partners grow well, they can export in large quantities. Some years, the currency is weak but the economies of trading partners are not doing well, so exports are not good. Therefore, we have to look at the trends of world trade and look at trade barrier policies, which are the main factors that will have a greater effect on the volume of trade than the currency.
“In recent times, the baht has been quite volatile. If we look at the beginning of 2567, the baht has not changed much. But during the year, it has fluctuated a lot. The BOT does not want to see too much volatility that is not due to fundamental factors. If it is due to fundamental factors, it will not force the market. But if it fluctuates beyond fundamental factors, the BOT will take care of it only as necessary. There will be no determination of the exchange rate because there are lessons learned from setting the exchange rate in the past.”
Dr. Sethaput said that the appropriate level of the currency must be in accordance with the economic mechanism. The currency that exporters want to see is a weaker currency, but importers want it to be stronger. Therefore, we have to look at various factors. The duty of the BOT is to look at the overall picture of the country. It is not that if the baht is weak, the economy will be better. In terms of exports, income may increase if the baht is weak, but import expenses will increase.
“If we look at it from another perspective, it is wealth. The country has assets in baht. If the currency is weak, everything becomes cheaper. Land in the country is also cheaper. It is like our Grand Sale Thailand. The weak baht also reduces the country’s wealth. These issues have many dimensions. In the past, Thailand had a lot of foreign debt. If the currency is weak, the debt increases. The country’s wealth decreases.”
As for the view that monetary policy must be the vanguard in 2568, Dr. Sethaput said that in that role, he wants to see very low interest rates and fast-growing loans. If compared to the context of the Thai economy at present, he would not want to see household debt rise too high. By the nature of monetary policy, the important thing is to take care of stability as a primary factor, along with other factors.
“The BOT’s primary role is to ensure that macroeconomic factors are stable and supportive of growth. Therefore, the BOT is part of the team that looks after the overall picture of the country in an appropriate role.”
Accelerate the resolution of the problem of inaccessibility to credit
Aiming to reduce risk to facilitate banks in lending
Dr. Sethaput also said that in 2568, the driving force of the Thai economy has changed from the original drive of domestic consumption, which used to expand by 6-7%, but in 2567, domestic consumption began to slow down and the trend will continue to slow down in 2568, with government spending becoming the engine driving the economy, including the service sector, which will play a role instead of the manufacturing sector, which has been quite affected by increased competition, especially in the automotive sector.
Meanwhile, the government has a higher budget deficit since the COVID-19 period, when public debt has increased quite a bit. However, it is necessary according to the economic situation that wants to see the deficit reduced because it may not be possible to allow the government to stimulate the economy all the time. Therefore, it needs more driving force from the private sector, especially private investment that has been declining for a long time. If there is private investment, it will increase the efficiency of the economy and the potential of the labor market. When looking at the balance sheets of large private companies, it can be seen that they can still invest and still have the ability to borrow more.
Dr. Sethaput mentioned that the issue of sluggish credit in the system, which is seen as a problem of lack of liquidity, is a misunderstanding. There is often a thought that liquidity is like a decreasing amount of water. But in reality, liquidity has not decreased. It may be true that credit has decreased, which is a contraction from increased risk, but it is not from the central bank absorbing liquidity back.
In the commercial banking system, there is still a need to lend, but because of the increased risk, banks see that lending increases the chance of bad debt. In this regard, the BOT itself sees this situation, especially the SME group, as quite worrying. It is clear that the SME group still does not have access to credit. This issue has not just happened, but has been happening for a long time. There was only the COVID-19 period when we saw an expansion in SME credit, but it was an expansion due to the stimulus measures that were issued. But after that, it went back to shrinking like before.
“The BOT is pushing for SMEs to have greater access to credit. When we see that the root cause is risk, we must solve the risk. Therefore, we are pushing for a credit guarantee mechanism, or National Credit Guarantee Institute (National Credit Guarantee Agency : NaCGA) To enhance the efficiency of the current government guarantee mechanism, to absorb some of the risks and support banks to provide more loans, the draft law to establish a joint organization between the Ministry of Finance and the Bank of Thailand is in the process of drafting the law.”
There is also the data factor because if there is not enough customer data, banks do not want to take the risk. Therefore, the BOT has pushed for project "Your Data Your data to financial services that meet your needs” This is a collaboration between the BOT and relevant agencies to develop a mechanism for users to exercise their rights to send their data that is with service providers and various agencies to the service providers they wish to use via digital channels conveniently and safely in order to receive financial services that meet their needs more, especially access to credit and financial management that is appropriate for each individual (Personalized Financial Planning).
The BOT expects to issue criteria and regulations for data transmission mechanisms in the financial sector and announce the standards in 2568. Users will be able to start exercising their rights to send data in the financial sector in the second half of 2569. Non-financial data, including tax data, electricity and water usage and payment, will be available in 2568.
“You fight, we help” is a powerful medicine for solving household debt.
Be careful not to cause Moral Hazard.
Dr. Setthaput said that from the BIS's statement that household debt levels should not exceed 80%, Thailand's household debt is currently at around 90% of GDP, which is understood to be far from reaching that level and must be done gradually because if household debt is reduced too quickly, the economy will be affected.
“Thai household debt is difficult to solve because it is not home debt like other countries. If it is home debt and the price of the house goes up, the debt will decrease. In Thailand, it is car debt, which the price of the car goes down. Another part is credit card debt and personal loans without collateral. Debt resolution is therefore difficult. Importantly, debt resolution in a sustainable way must increase household income.”
The BOT has continuously issued debt resolution measures, including debt restructuring measures and responsible lending. The most important measure is to restructure debt before it becomes non-performing, which is a targeted measure. However, some people may think that responsible lending measures will prevent banks from granting loans because they meet the BOT's criteria. In fact, the BOT only provides a framework as a guideline. The consideration of loan approval is up to each bank.
“Responsible Lending is the requirement for banks that will provide loans to take into account that people’s debt burden must not exceed their spending. They must look at income to debt burden, not just aiming for profit and not looking at people’s debt burden. In this regard, the BOT has criteria for setting the ceiling of the debt service ratio (Debt Service Ratio: DSR), which is a very strict criterion. However, due to the current economic situation, it has not been used yet because it is considered inappropriate.”
Dr. Setthaput added that the latest measure is the “You Fight, We Help” project, which is a fairly strong medicine but is appropriate for the situation. In particular, one of the measures is the direct payment of assets, which helps create incentives for debt restructuring because the installments are reduced for a period of 3 years. Those who are eligible are those who have been in default for no more than 1 year.
“The reason for this measure is not to see the household debt-to-GDP ratio decrease immediately because it is a gradual process. This measure is considered a strong medicine, but we must be careful not to create the wrong incentives that lead to moral hazard. We do not want people to think that if they have a problem, someone will help them. Compared to other countries, our measures are strong. And helping debtors must focus on helping debtors who are in need. It is helping groups that, if not helped, will be in trouble first.”
Confirming that the Thai financial system is not backward
Connecting international payments
For the case of the idea of issuing Stablecoin to increase liquidity, Dr. Setthaput said that we have to ask whether issuing Token is the most direct solution to the liquidity problem. Because as long as there is still risk, even with new tools, it may not be able to solve the problem of access to credit.
“Asset-backed tokens, the regulation in many countries is still unclear. In some places, stablecoins may come out as mutual funds. If it is an investment, the SEC will be the regulator. But if it is a payment for goods and services, it is the central bank’s business. But we have to see what the stablecoins can answer. Compared to the risks, is it worth it? In other countries, it is an issue. They see that they can be designed in many forms, whether it is a mutual fund or payment, but they have to be properly regulated.”
For the payment aspect, which is the responsibility of the BOT, we have to consider how Stablecoins will meet the payment needs because the current payment system in Thailand is quite convenient. PromptPay can be used without any problems. However, it does not mean that the BOT will stop. We still want to see more convenient innovations.”
Dr. Setthaput said that the next challenge that the BOT will solve is connecting to foreign countries, which is not lagging behind when it is being implemented. Recently, it has moved forward. project Nexus Linking instant payment systems of each country in a multilateral payment linkage, together with central banks of Malaysia, the Philippines, Singapore and India as the first members of Nexus, signed an agreement to join Nexus Project Phase 4, with Indonesia joining as an observer, aiming to make cross-border payments convenient, low-cost, secure and transparent, which will benefit the people who will use the services.
In addition, there is also project mBridge Or "Multiple-Central Bank Digital Currency Bridge" is the development of Wholesale CDBC for international money transfers. The mBridge project is an experiment in creating a system in which financial institutions from each country can connect directly 24 hours a day without having to rely on an intermediary. This system will make international money transfers more efficient at a lower cost. Initial studies have found that it reduces the time it takes to transfer money internationally to just seconds when compared to transfers in the current system, which takes about 3-5 days.
And in the past, the BOT has tested CBDC (Central Bank Digital Currency) which was previously issued as a pilot because it wanted to test whether it could support transaction volumes similar to PromptPay. The test found that it could, but in the end it was called a pilot to learn, a study that did not rush to replace it with another system.
“If you ask what Stablecoin answers, it has to be something more than the PromptPay system. What the BOT is interested in is putting conditions on the usage, such as once the payment is made, it will not be sent to the seller immediately until the buyer receives the goods. But sometimes, innovation has to be seen whether it really answers the question and whether it is worth the risk.”
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