Thailand’s central bank Governor Veerathai Santiprabhob said there are still financial frailties in the economy, which are being tackled through a combination of measures, including macro-prudential steps and the monetary stance.
Interest rates have been “low for too long,” leading to an under-pricing of risk in the financial sector, which prompted the Bank of Thailand to raise its policy rate in December, Veerathai said in an interview Thursday with Bloomberg Television’s Haslinda Amin in Chiang Rai, northern Thailand. Those risks are still there, he said.
“It will take some time to address concerns on financial fragilities and they can’t be addressed by one policy alone,” he said.
The central bank is trying to balance competing challenges in the economy, including elevated debt levels, slowing growth and subdued inflation. Officials have in recent weeks flagged the possibility of gradual monetary tightening depending on the strength of incoming data, a contrast to the dovish tilt globally as world economic momentum ebbs.
The Bank of Thailand raised its policy rate in December by a quarter point to 1.75 percent, the first increase since 2011.
The Bank of Thailand expects only a moderate slowdown in Thai economic growth this year, to 3.8 percent from 4.1 percent in 2018. Inflation last month pushed past 1 percent, the lower bound of the central bank’s target zone that stretches to 4 percent.
Veerathai said the range of 3.8 percent to 4 percent is consistent with the economy’s potential growth rate. There is “definitely a downside risk” to the growth forecast, but a certain amount of that has been incorporated into the central bank’s projections already.
The governor said the slowdown in China is a worry for economies in Southeast Asia, and a trade agreement between the U.S. and China will help improve the outlook.
Political risk has also climbed in Thailand after an inconclusive general election on March 24, which followed almost five years of enforced calm under military rule.
The baht has appreciated 2.5 percent against the dollar this year, making it one of the top-performing major Asian currency in the period. A hefty current-account surplus — projected at $34.5 billion in 2019 — and substantial foreign reserves are bolstering the baht.
“We do take into consideration the movements of the baht as well when we make policy decisions,” Veerathai said. “But lately I think the baht has been moving in line with fundamentals of the economy.”