Domestic factors to drive policy rate

The Bank of Thailand is focusing primarily on domestic factors when considering adjustments to its policy rate, rather than following the US Federal Reserve’s recent rate cut, according to the governor of the central bank.
Speaking at a central bank symposium held on Friday, governor Sethaput Suthiwartnarueput said the Monetary Policy Committee typically bases its decisions on three core domestic factors: economic growth, inflation and financial system stability.
These considerations are part of the central bank’s outlook-dependent approach to monetary policy, he said.
In terms of the outlook, both economic growth and inflation remain consistent with the central bank’s current assessment.
However, credit tightening across the financial system has accelerated more than expected, largely based on rising credit risk associated with the deterioration of asset quality.
Commenting on the Fed’s rate cut of 50 basis points on Wednesday, Mr Sethaput said the move was largely expected by the market, with investors in the money and capital markets already pricing in the shift.
He said the Thai economy would not be significantly affected by the cut, although the baht has strengthened as the US dollar weakened.
“While the baht’s movement aligns with other regional currencies, it has been more volatile against the dollar compared with its peers,” said Mr Sethaput. “The baht’s appreciation against the dollar is more closely aligned with the South Korean won, rather than the Malaysian ringgit or Indonesian rupiah as it was previously.”
Comparing the volatility rates of Asian currencies against the dollar year-to-date, the baht’s volatility rate is 7.5%, followed by the South Korean won (7.2%), the ringgit (5.8%), the rupiah (5.5%), and the Philippine peso (4.7%).
The baht has appreciated by 2.4% against the greenback, second only to the ringgit, which recorded an 8% gain.
The Singapore dollar and Indonesian rupiah have strengthened by 1.9% and 0.8%, respectively, while the South Korean won, Taiwanese dollar, and Philippine peso have weakened by 4.3%, 3.1%, and 0.5%, respectively.
Mr Sethaput said the baht is more closely correlated with gold prices than with other regional currencies.
With global gold prices reaching record highs, he said the baht’s movement has been more significantly affected than its regional counterparts.
The central bank is monitoring the baht’s volatility, especially against the dollar, and stands ready to look after the Thai currency if required, said Mr Sethaput. However, the central bank remains largely unconcerned as the baht’s fluctuations are being driven by the dollar’s weakness.
“Given the heightened uncertainties in money and capital markets, we are also keeping an eye on potential speculative factors arising from hot money flows, but we do not see any significant risk,” he said.
Foreign capital outflows from Thailand’s bond and capital markets have improved this year compared with 2023.
Net foreign capital outflows reached US$9.9 billion in 2023, but the level this year-to-date declined to $2.2 billion, said Mr Sethaput.