Tuesday, September 23, 2008

Bank of Thailand satisfied with liquidity


There is still ample liquidity in local money markets to support the Thai economy, Bank of Thailand governor Tarisa Watanagase said yesterday.

"There is no need to inject added liquidity into the markets," she said.

Dr Tarisa added that turmoil on Wall Street over the past month would have a negligible impact on the Thai financial system and that capital outflows were low compared with other countries in the region.

Major central banks around the world have been injecting hundreds of billions of dollars into the international money markets to stave off a complete seizure of credit markets in the wake of the Lehman Brothers' bankruptcy and the near-collapse of insurance giant AIG.

Dr Tarisa stressed that the exposure of Thai banks to Lehman Brothers was insignificant compared with their total balance sheets.

The central bank has estimated that Thai banks hold just seven billion baht worth of Lehman Brothers investments or forward exchange contracts.

Total outstanding foreign assets held by Thai banks are also quite small, at just US$7 billion. Dr Tarisa said that a number of banks were in the process of unwinding their overseas positions to reduce risk.

Meanwhile, the appreciation of the Thai baht is being driven by weakness in the US dollar, which has fallen against most currencies over recent days as investors forecast prolonged difficulties for the US economy as the costs of the financial crisis increase.

The baht yesterday was quoted at 33.74/80 baht to the US dollar, a one-month high. Last week the currency was among the best performers in the region against the dollar.

"The fact that the baht appreciated stronger than other regional currencies may reflect the fact that foreign capital outflows from Thailand have been less than from other countries in the region," Dr Tarisa said.

She brushed off concerns that the central bank may have difficulties working with Suchart Thadathamrongvej, the presumed successor to Surapong Suebwonglee as Finance Minister.

Dr Suchart, an economist and academic, was a strong critic of the central bank's move to raise interest rates earlier this year to help curb inflation.

But Dr Tarisa said she did not expect any problems. "The central bank is confident that it can work with anyone. There are no conflicts," she said.

Meanwhile, Vachira Aromdee, director of international economics for the Bank of Thailand, said regional central bankers were in agreement that the US financial crisis would have a modest impact on the region.

Last weekend in Bangkok, the Bank of Thailand hosted the 27th Seanza Governors' symposium, which brought together central bankers from 20 countries in the Asia Pacific, Australia and New Zealand.

Mrs Vachira said while the fallout from the US crisis was expected to be mild for the region, central bankers agreed that more aggressive policies were required to help accommodate the rise in volatility in financial markets.

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