Home Economy Continued Monitoring Of Financial Stability Risks Needed: Thailand CB Minutes

Continued Monitoring Of Financial Stability Risks Needed: Thailand CB Minutes

by RTTNews Staff Writer

Risks to financial stability such as high household debt, warrants continued monitoring, while property sector risks have abated, minutes of the Bank of Thailand August 7 rate-setting session revealed on Wednesday.

“Financial system risks still posed vulnerabilities to financial stability,” the minutes said.

In the second quarter, household debt increased steadily in line with credit expansion of commercial banks and non-bank financial institutions, the central bank said.

Consumer loan growth that was underpinned by more lenient lending standards warrant monitoring, the bank stressed.

Further, the bank noted that the share of households that are sensitive to negative income shocks have increased, weighing on household debt serviceability.

“Therefore, the channels through which negative income shocks could affect such households during an economic slowdown and drought conditions should be closely monitored,” the bank said.

The Bank of Thailand said it worked with commercial banks to standardize debt service ratio, or DSR, calculation in order to collate DSR data should additional measures intended to curb household debt become necessary in the future.

The Monetary Policy Committee assessed that the Thai economy would grow at a slower rate than previous expected and below its potential, due to a decline in merchandise exports and its effect on domestic demand.

On August 7, the MPC unexpectedly voted 5-2 to cut the policy rate by a quarter-point to 1.50 percent. The latest rate cut was the first since April 2015.
Policymakers expect the Thai economy to face heightened uncertainties mainly from the external front. Further, a sustained exchange rate appreciation is set to have a greater effect on exports.

The Thai economy grew 2.3 percent year-on-year in the second quarter, which was the slowest pace in five years, led by weaker domestic demand and foreign trade.

The annual average inflation is projected to remain below target amid falling energy prices.

“Most Committee members viewed that more accommodative monetary policy would foster the continuation of economic growth and the return of headline inflation to target in the context of heightened uncertainties mainly from external factors,” the minutes said.

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