Thai central bank head warns of financial system risk from ultra-low rates

[Jonathan Fairfield]

Thai central bank head warns of financial system risk from ultra-low rates

 

FILE PHOTO: Thailand's Central Bank Governor Veerathai Santiprabhob speaks during an interview with Reuters at the Bank of Thailand in Bangkok, Thailand, October 4, 2019. REUTERS/Matthew Tostevin

 

WASHINGTON (Reuters) - Huge global capital flows and prolonged ultra-low interest rate policies of advanced nations have made it harder for emerging economies to protect their financial system, Bank of Thailand Governor Veerathai Santiprabhob said on Sunday.

 

Given a surge in the past decade of capital flows driven by global investors seeking "speculative returns," emerging economies have become more vulnerable to exchange-rate volatility that hurt their companies, he said.

"At times, exchange rates could serve as an amplifier of shocks in capital flows instead of being a stabiliser of shock in capital flows," Veerathai said in a seminar on policy challenges for emerging market central banks.

 

"The movement of the exchange rate is an important channel for small, open economies and have a real impact on profit margins, competitiveness ... and survival of exporting firms."

 

Spillovers from ultra-loose monetary policies of advanced economies also risk undermining financial stability in emerging economies, Veerathai said.

 

Emerging market central banks need to follow their advanced nations' counterparts in delaying normalisation of ultra-loose monetary policies to prevent their currencies from appreciating, he said.

 

"Because of this, emerging markets' monetary policies could be distracted from the core mandate of their domestic policy objectives," he said.

 

"A delay in the normalisation (of monetary policy) from the low-for-long rate environment could exacerbate financial system stability."

 

With household debt already at historically high levels and inflation subdued in their economies, emerging market central banks can look not just at inflation but financial stability in pursuing monetary policy, Veerathai said.

 

"Financial stability has to be given a more prominent role in monetary policy decisions," he said.

 

(Reporting by Leika Kihara; Editing by Lisa Shumaker)

 

-- © Copyright Reuters 2019-10-21

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[morrobay]

I agree with above and if you don't like the baht/$ exchange rate you can thank that very low % hack-greenspan with the other saps at the fed and their qe-sugar dollars, Wall Street and the should be in prison financial crisis bankers. Quote from Stalin: "The way to destroy a country is to destroy its currency" Sounds like treason to me. 

Edited October 21, 2019 by morrobay

[quadperfect]

And the us will go all the way down to zero taking the rest of the world with them. Qe 4 with bank bailouts till next year are destroying everything.

thailand will be the next supper power with its strong bht and military . Unfortunately there will be no tourists because china will be bust also and it looks like a long road ahead.

Have youre bug outs ready...

[Matzzon]

2 hours ago, Jonathan Fairfield said:

Huge global capital flows and prolonged ultra-low interest rate policies of advanced nations have made it harder for emerging economies to protect their financial system, Bank of Thailand Governor Veerathai Santiprabhob said

At least he have come up with an explaination that will eliminate him as a failure for keeping the value of the baht up too long. Now he can blame all the advanced nations. It´s thier fault, not mine!

[DLock]

I do like how he talk's in the "third person" (emerging economies), instead of using the word Thailand.

[RichardColeman]

3 hours ago, Jonathan Fairfield said:

Spillovers from ultra-loose monetary policies of advanced economies also risk undermining financial stability in emerging economies, Veerathai said.

I guess Thailand is buying all those munitions to declare war on 'advanced economies'

[worgeordie]

It's about time they started to think about the "Savers", those

that manage their money and try to save a few bob every month,

everything seems to be in favour of those that are in debt,because

they cannot control their spending,the "Must have it,and have it now"

folks.

In the past saving was encouraged,now been in debt is the new black.

regards worgeordie

[kevin612]

Pleas don’t just talk it will hurt the economy, it happens for so long. Take action, ACTION.

[WhatupThailand]

Paper and Ink is still only Paper and Ink,

No matter how much they Con you into believing otherwise.

Fiat Currency always Crashes and Burns, no matter their manipulations.

Tie the currency to Gold and Silver, and watch how fast Reality Corrects the Situation.

[IAMHERE]

13 hours ago, quadperfect said:

And the us will go all the way down to zero taking the rest of the world with them. Qe 4 with bank bailouts till next year are destroying everything.

thailand will be the next supper power with its strong bht and military . Unfortunately there will be no tourists because china will be bust also and it looks like a long road ahead.

Have youre bug outs ready...

The USA isn't in the lead to Negative Rates. You can google that to see countries already doing Negative Rates. So, the USA isn't taking the rest of the world anywhere, for once that America isn't the leader. You are probably correct with the QE comments though.

Edited October 22, 2019 by IAMHERE
simplify

[soalbundy]

13 hours ago, Matzzon said:

At least he have come up with an explaination that will eliminate him as a failure for keeping the value of the baht up too long. Now he can blame all the advanced nations. It´s thier fault, not mine!

He isn't keeping it up he just isn't driving it down for the reasons he mentioned, household debt is high enough as it is. Where it really matters Thailand has some very good people in charge and this man is one of them.

[Matzzon]

47 minutes ago, soalbundy said:

He isn't keeping it up he just isn't driving it down for the reasons he mentioned, household debt is high enough as it is. Where it really matters Thailand has some very good people in charge and this man is one of them.

What? You must be joking with me!? Is this a university protective attitude? Did you two go to the same school? ????????????

[Fex Bluse]

17 hours ago, Jonathan Fairfield said:

Thai central bank head warns of financial system risk from ultra-low rates

 

FILE PHOTO: Thailand's Central Bank Governor Veerathai Santiprabhob speaks during an interview with Reuters

I believe whatever he says.

He dresses and gestures smartly.

Look at that pen peeking from his shirt pocket.

I'm convinced.

[Bob12345]

5 hours ago, IAMHERE said:

The USA isn't in the lead to Negative Rates. You can google that to see countries already doing Negative Rates. So, the USA isn't taking the rest of the world anywhere, for once that America isn't the leader. You are probably correct with the QE comments though.

Negatives rates...

 

How about a positive rate of 0.5% and at the same time creating several percent of inflation?

 

Thats a negative real interest rate.

[Srikcir]

To use an analogy to understand what Veerathai argues as to who is at fault for a distorted currency value:

• Federal Reserve Governors for ten nations stand in a row, including Thailand.
• Nine step back one pace to lower currency value by lowering interest rates.
• Thailand's position remains unchanged.
• Blame is placed on the Governors that stepped back.

[placnx]

Germany certainly bears great responsibility for negative rates in Europe due to its excessive budget surplus mentality. It should have been helping the other Euro countries reflate their economies, but Germans have difficulty getting over the disastrous economic aftermath of WW I when they were assessed unaffordable reparations.

 

As for the US, the fault does not lie with the Fed. Rather it is the failure of the Treasury Dept, i.e. ministry of finance, to deal effectively with the economic crisis by devising a program to prevent unnecessary foreclosures. While the Fed could reflate the stock market, the very important housing market limped along for 10 years and in some regions had not recovered to 2006 levels 11-12 years later. This recovery needed to happen in around four years to prevent dislocation of the American economic model where most families save through home ownership, in the thought that real estate always goes up!!! That delusion is dispelled.

 

Nonetheless, a new model has not really replaced this, so many people face uncertainty - not good for economic stability. There are several companies that together control hundred of thousands of home rental properties, mostly for young urbanites and movers to suburbs who would otherwise be buying a first home. That's great to exploit this popped bubble, but the reality is that home ownership has only gone down 5% or so from the peak, around 65% of households. The upside is that people who rent can up and move to the other side of the country to find new work. But mobility is not the end-all. Most people still live their lives close to where they grew up.

 

Americans definitely need to reorganize their mortgage system so that the next downturn, probably worse than 2007-09, will not further kill off wealth accumulation  of the 99%. The next downturn, coming pretty soon, will further entrench negative rates. I cannot but feel gloomy about our economic future with stagnant "leadership" in the principal capitals. 

[xenophon]

There is a book in this ... Fiscal Management in a Kleptocracy or Hands Off, who cares? As long as I'm OK

 

"Spillovers from ultra-loose monetary policies of advanced economies also risk undermining financial stability in emerging economies, Veerathai said."

 

= not my or our fault (sounds familiar). Them evil advanced economies dunnit to us

"Emerging market central banks need to follow their advanced nations' counterparts in delaying normalisation of ultra-loose monetary policies to prevent their currencies from appreciating,"

 

Too late for that, I am afraid, my facile friend. = We do not know what to do. Hopefully, Veerathai is just pretending to be incompetent

[xenophon]

12 hours ago, WhatupThailand said:

Paper and Ink is still only Paper and Ink,

No matter how much they Con you into believing otherwise.

Fiat Currency always Crashes and Burns, no matter their manipulations.

Tie the currency to Gold and Silver, and watch how fast Reality Corrects the Situation.

or cows? seashells? beads?

[timendres]

3 hours ago, placnx said:

As for the US, the fault does not lie with the Fed. Rather it is the failure of the Treasury Dept, i.e. ministry of finance, to deal effectively with the economic crisis by devising a program to prevent unnecessary foreclosures.

In my opinion, the fault goes back much further. Both the Treasury and the Fed are to blame for the bailouts of the S&L industry in the 80's, and LTC in the 90's, which cemented the concept of "Too Big To Fail", resulting in a major shift in risk analysis. Had those two failures been allowed to unfold naturally, the short term pain would have been greater, but the long term stability of the system would have been stronger.

 

This was exaggerated by congress repealing the Glass-Steagall act, which prevented the banks from intermingling their reserve and trading capital, putting depositors at unnecessary risk, and increasing the instability of the system overall.

 

Finally, the US congress is also to blame for not being more diligent on spending, resulting in government debt levels that now create an enormous risk if the Fed allows interest rates to move back to normal levels, as well as putting a huge burden on the bond markets to swallow all of that US debt issuance.

[timendres]

3 hours ago, xenophon said:

There is a book in this ... Fiscal Management in a Kleptocracy or Hands Off, who cares? As long as I'm OK

 

"Spillovers from ultra-loose monetary policies of advanced economies also risk undermining financial stability in emerging economies, Veerathai said."

 

= not my or our fault (sounds familiar). Them evil advanced economies dunnit to us

"Emerging market central banks need to follow their advanced nations' counterparts in delaying normalisation of ultra-loose monetary policies to prevent their currencies from appreciating,"

 

Too late for that, I am afraid, my facile friend. = We do not know what to do. Hopefully, Veerathai is just pretending to be incompetent

 

Veerathai is correct in the sense that advanced economies move Trillions of dollars around, while Thailand works in Billions. Thailand is not the tail that can wag the dog. But it sure does seem that they are not that motivated to take the actions that they do have at their disposal, and one wonders (I say sarcastically) why that is.

[marko kok prong]

From the photo it looks like he has a partially collasaped pie sitting on the cabinet behind,him,better eat it up old chap,before the ants find it.

[placnx]

1 hour ago, timendres said:

In my opinion, the fault goes back much further. Both the Treasury and the Fed are to blame for the bailouts of the S&L industry in the 80's, and LTC in the 90's, which cemented the concept of "Too Big To Fail", resulting in a major shift in risk analysis. Had those two failures been allowed to unfold naturally, the short term pain would have been greater, but the long term stability of the system would have been stronger.

 

This was exaggerated by congress repealing the Glass-Steagall act, which prevented the banks from intermingling their reserve and trading capital, putting depositors at unnecessary risk, and increasing the instability of the system overall.

 

Finally, the US congress is also to blame for not being more diligent on spending, resulting in government debt levels that now create an enormous risk if the Fed allows interest rates to move back to normal levels, as well as putting a huge burden on the bond markets to swallow all of that US debt issuance.

It's all a continuum, so we can cite precursor causes of any situation.

 

The bailout in the 1980s was a result of deregulation at a time when interest rates were crazy due to Fed policy under Volcker (up to 20%). I'd say that this Volcker policy was a mistake, that much lower rates would have achieved a satisfactory result without so much distortion. Anyway, via deregulation when people suddenly had alternatives to bank deposits, they withdrew their savings which the S&Ls were using to finance mortgages. These S&Ls were then practically insolvent and were taken over and looted by crooks with help from 5 senators.

 

While the repeal of Glass-Steagall is often blamed, as important is the lax enforcement of existing laws, by the Fed and other bank regulators. To some extent this was by ideologically motivated intent.

 

These very high rates also led to a very high US dollar. This was resolved by the Plaza Accord in 1985. Could we possibly have such international cooperation today?

 

In the 2007-09 crisis, the free market purists were advocating quick foreclosure, moving on. This was an ideological position divorced from reality, perhaps motivated by greed. Mortgages are regulated by state law, so foreclosures in some places dragged on for years, often due to dodgy paperwork. Had it all hit at once, perhaps we would have had meltdown!!

 

Unfortunately, we cannot possibly go back to "normal" interest rate levels anytime soon. Just look what happened last year when the Fed tried raising rates. These low rates have generated a monstrous international debt bomb that when triggered will cascade back & forth. It could take ages to resolve, sorry to say. The US national debt is a small problem in comparison.

 

In the future, perhaps we will blame the whole mess on the internet!

[WhatupThailand]

8 hours ago, xenophon said:

or cows? seashells? beads?

YES, Anything with value in and of it's self.

[WhatupThailand]

On 10/22/2019 at 6:08 PM, marko kok prong said:

From the photo it looks like he has a partially collasaped pie sitting on the cabinet behind,him,better eat it up old chap,before the ants find it.

Why do I get the feeling, that the pie was thrown at him ?

And I notice he is a Quick Dodger with no pie on him.

Wonder how he is at Domino's as they begin to Fall.

[CPH]

The problem with the strong Thai baht is that it attract foreign investors. This inflow of foreign money will in turn make the Thai baht stronger. As long as Thailand keeps the interest rate unchanged these investors feel safe to stay in Thai baht. If the Thai central bank indicated that it was on a lowering pad it would keep these investors out of Thai baht. The risk is that one day the US dollar will start to increase in value and all the investors in Thai baht will run for the gates leading to a sudden fall in the Thai baht. 

[AussieBob18]

On 10/21/2019 at 11:12 PM, Matzzon said:

At least he have come up with an explaination that will eliminate him as a failure for keeping the value of the baht up too long. Now he can blame all the advanced nations. It´s thier fault, not mine!

Nail on the head - HIT !!