BANGKOK, Nov. 25 (Xinhua) -- The Bank of Thailand (BoT) on Monday warned private sectors to brace for more challenges in next year’s foreign exchange risks as there is a tendency the currencies will continue to fluctuate due to geopolitical factors.
BoT governor Veerathai Santiprabhob said that with the strong baht currency and Thailand’s interest rates hitting a record low of 1.25 percent, there will be less room for the central bank to lower its monetary policy rate.
“We cannot predict the direction of the Thai currency,” said Veerathai, “it can go either way, driven by external factors that have constantly affected the capital and financial markets.”
Thailand’s Monetary Policy Committee on November 6 cut the policy rate to 1.25 percent, a historical low rate since the global financial crisis in 2008 to 2009.
Veerathai said however Thailand is not alone in experiencing the downward trend of the interest rates. In fact, most countries are now under the low interest rate environment.
He said that according to the International Monetary Fund’s (IMF) analysis released last month, about 70 percent of economies around the world, weighted by GDP, have adopted a more accommodative monetary stance.
The shift has been accompanied by a sharp decline in longer-term yields, and in some major economies, interest rates are deeply negative, the BoT governor quoting the IMF’s report.
In the IMF report titled “Lower for Longer: Rising Vulnerabilities May Put Growth at Risk” released last month, investors have interpreted central bank actions and communications as a turning point in the monetary policy cycle.
The report also predicts that as the pace of global economic activity remains weak, financial markets expect rates to stay lower for longer than anticipated in early 2019.
Veerathai said that low interest rates can also contribute to certain fiscal policies, including reducing borrowing costs for constructing infrastructure projects, which can in turn help stimulate growth.
The BoT governor suggested that the Thai government can also use the slow economy to restructure public debt or extend the debt service period by issuing bonds with longer maturity to finance its public investment.