Choppy waters for the economy as central bank tries to cling to its benign interest rate policy

[webfact]

On Monday, speaking at a forum in Bangkok, Governor Sethaput Suthiwartnarueput of the Bank of Thailand highlighted the kingdom’s sky-high household debt level which he told his audience stood at 88% of GDP at the end of June or approximately ฿15 trillion. The bank had been planning two further rate hikes of 25 basis points this year, one on Wednesday and the other at the end of November but the pressure is mounting for a heftier rate rise to prop up the falling baht as the gap between interest rates in the United States and Thailand has widened substantially in the last few months.

 

by Joseph O' Connor

All eyes will be on the Bank of Thailand’s Monetary Policy Committee meeting on Wednesday when it will be under pressure to go beyond a 25 basis points rise in the borrowing rate which currently stands at 0.75%. Inflation of 7.86% in August and the plummeting baht will make a strong case for a heftier rise but the impact of higher borrowing costs on ฿15 trillion in household debt recorded at the end of June gives us some idea of how this may impact what Bank of Thailand Governor Sethaput Suthiwartnarueput has described as a fragile and uneven economic recovery with the country trying desperately to move beyond the disaster inflicted on the economy in 2020.

Pressure is building on the Bank of Thailand as it seeks to maintain its benign interest rate policy as the baht tumbled again on Monday with US interest rates at between 3% and 3.25% and Thailand’s at 0.75%. This comes as Thailand reported a $4.2 billion trade deficit in August and with the country’s vast foreign exchange reserves falling by 5.4% from mid-August up to last Friday. On Monday, days ahead of the Monetary Policy Committee of the central bank, Governor Sethaput Suthiwartnarueput told a forum that he was concerned about the kingdom’s massive ฿15 trillion in household debt which he described as a structural impediment to GDP growth.

 

As the baht tumbled again on Monday, at one point, hitting ฿37.90 against the dollar before falling back to ฿37.82, it had fallen by as much as 17.59% since the 13th of February when it was quoted at ฿32.16 to the greenback.

 

Full story: https://www.thaiexaminer.com/thai-news-foreigners/2022/09/26/choppy-waters-for-the-economy-as-baht-falls/

 

-- © Copyright Thai Examiner 2022-09-27

 

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[2baht]

3 hours ago, webfact said:

highlighted the kingdom’s sky-high household debt level which he told his audience stood at 88% of GDP at the end of June or approximately ฿15 trillion.

Well, I need a new Honda Wave, just like my neighbors, let's borrow some more! ????

[Boomer6969]

Funny that only the US Fed, and "Sleepy Joe", can see to nee the compensate for the frantic emissions of the Covid times. Thanks US, for thais as well as for the Ukraine bit.

[RichardColeman]

Amazing the Thai currency does not seem to move with other countries putting their interest rates up. One can only assume some heavy 'unseen' manipulation somewhere. Maybe Japan style !

[Walker88]

The Household Debt number is astonishing. I didn't think it was so high. Rough waters ahead...and not only from typhoons.

 

Using data from the Bank of Thailand and the US Federal Reserve, the per capita Household Debt in the US stands at about 69% of per capita US GDP, while in Thailand it is over 90% of Thai per capita GDP. (The numbers vary depending on the source and exchange rates used, but I used more current FedRes data).

 

I am uncertain if the Thai Household Debt number includes "non-traditional" sources of debt, meaning loan sharks. If it does not, then debt certainly hampers any possible economic recovery in Thailand, especially when viewed in light of the $4.2 billion monthly trade deficit noted in the article, the fall in FX reserves, and the nascent recovery in the Tourism Sector (which was officially 18.8% of Thai GDP in 2019, pre-Covid).

 

Toss in one more negative: the growing trend in factory migration by foreign firms to Vietnam as PPE (not Covid PPE, but property, plant and equipment) becomes aged and obsolete.

 

As they say on late night infomercials in the US, "But wait ! There's more."

 

During Covid, the BoT allowed banks to engage in a lot of creative accounting to go along with the debt moratorium that was in effect for much of 2021. Banks could book 'imputed interest', meaning they could pretend borrowers were servicing debt when, in fact, they were not. These accounting tricks were run through bank P&Ls and masked the true level of NPLs. Also in 2021 the laws were changed to allow banks to create subsidiary financial entities that could buy debt. One need not be a cynic to wonder how these entities are consolidated on the parent's BS, and if there is accounting gimmickry allowed. (I do know that during the peak of Japan's Post Bubble "Dai Boraku, or Big Crash", rules were changed so that subsidiaries representing less than 10% of the total corporations balance sheet did not have to be consolidated. I could write volumes on the fraud that was a result of this.)

 

I'd say the financial authorities in the BoT and Thai govt are in the proverbial 'stuck between a rock and a hard place'. Raise rates to strengthen the baht and attack inflation, and pressure is put on indebted households and Thai corporations (who grew their debt far in excess of GDP growth in the supposed Boom Years after 2011). Maintain the current interest rates and while that could help trade and tourism, it likely exacerbates inflation.

 

What is the solution? Frankly, there is no easy answer. Living high---whether households, corporations, or govt---comes with a cost. Thailand isn't unique in this way, but its numbers do not stack up well---much worse than many nations---and its economy is highly beholden to Tourism and Trade and cheap labor, vs domestic innovation and highly skilled labor. I suspect there's a long, slow slog in Thailand's future, though I hope I'm dead wrong.

Edited September 27, 2022 by Walker88

[stoner]

28 minutes ago, Walker88 said:

"But wait ! There's more."

 

[smedly]

6 hours ago, webfact said:

As the baht tumbled

the baht hasn't tumbled, the $ has increased against all currencies, they have really wierd way of looking at things

[Cake Monster]

2 hours ago, Walker88 said:

Using data from the Bank of Thailand and the US Federal Reserve, the per capita Household Debt in the US stands at about 69% of per capita US GDP, while in Thailand it is over 90% of Thai per capita GDP. (The numbers vary depending on the source and exchange rates used, but I used more current FedRes data).

There appears to be some kind of " Smoke and Mirrors " activity concerning the amount of Household Debt to GDP.

Six months or so ago, the debt was reported at 94 % of GDP, and was projected to rise to nearly 100 % of GDP by the Years end.

A report in about April of this Year, stated that the ratio of Household Debt had increased by 13 % over the previous 2 Quarters, an insane amount.

2 hours ago, Walker88 said:

I am uncertain if the Thai Household Debt number includes "non-traditional" sources of debt, meaning loan sharks. If it does not, then debt certainly hampers any possible economic recovery in Thailand, especially when viewed in light of the $4.2 billion monthly trade deficit noted in the article, the fall in FX reserves, and the nascent recovery in the Tourism Sector (which was officially 18.8% of Thai GDP in 2019, pre-Covid).

This publication of the Household Debt, does not include the amount of Money that is in the hands of the Loan Sharks, and is additional Debt to the published numbers, and the amount in the hands of the Loan Sharks is also an eye-watering amount

The amount of Capital outflows was reported in a paper out of Bangkok as being some 5 + % of the entire Foreign Currency Account.

These outflows are going to continue, as better rates are now offered in the $, than the baht, and most, if not all of the money located into Thailand during the 2008 financial crisis, is going to be relocated back to the US.

Thailand is indeed between a rock and a very hard place.

Pushing up the Interest Rates to combat the rising Inflation ( which is going to increase once the Electricity and Labour rates hit Factory Gate prices ), is going to push so many people into Delinquent Debt, such is the amount of borrowing.

It has to be remembered that most of this Household Debt is against poor asset Loans, such as Vehicles, Credit Cards, and White Goods.

During Covid, the Gov,t had a policy to keep the Economy ticking over by increasing Domestic Consumer spending.

Well !, that is now coming back to bite them in the Butt.

Edited September 27, 2022 by Cake Monster

[hotchilli]

3 hours ago, RichardColeman said:

Amazing the Thai currency does not seem to move with other countries putting their interest rates up. One can only assume some heavy 'unseen' manipulation somewhere. Maybe Japan style !

Prawit made it obvious that it's manipulated.

[crazykopite]

 Currency manipulation at its very best it’s been like this since the military took power and in the not so distant future things are going to go belly up . I read the other day that this year the suicide rate in the kingdom has increased dramatically people have so much debt they cannot find there way out and as for all the loan sharks that’s another issue I know of at least 3 Thais who are in constant hiding of these unscrupulous characters because they had no other alternative but to go to them as a last resort . I only see gloom and doom for Thailand and due to world wide issues caused by the Russian illegal invasion of Ukraine I think we can all forget about this years high season . I hope I’m wrong !

[spidermike007]

"gives us some idea of how this may impact what Bank of Thailand Governor Sethaput Suthiwartnarueput has described as a fragile and uneven economic recovery with the country trying desperately to move beyond the disaster inflicted on the economy in 2020".

 

Talk about an understatement. How and why was this disaster inflicted upon the economy? I would go one step further, and include the Prayuth decimation as one of the causes of the economic stagnation we are seeing now. This was not entirely circumstantial, and the revisionist history is already beginning, it would appear. So many things could have been done, to ensure a softer landing, when covid was not a factor anymore. The highly selective economic shutdowns which favored cronies, at the expense of the average Thai were punitive and extremely damaging, resulting in higher suicides, homelessness, crushed lives, countless lost businesses, and a further spread of the disease. 

 

The destruction of the tourism industry (which some might argue was a purification campaign in disguise, meant to get rid of nightlife and the sex industry) went on far longer that it should have, leading to far fewer tourists returning here, as the nation has largely been forgotten. The restriction were way too much, for far too long.

 

I know taking responsibility for one's actions is not exactly a strong suit here. But, Prayuth, Phiphat, Prawit, and Anutin are directly responsibility for much of the economic woes we are seeing now, and should be held responsible, and called out on this. The numbers do not even begin to reflect the amount of damage done to the cash economy, which is never counted in unemployment numbers, lost GDP, lost businesses, etc. Covid was one small factor. Irresponsible actions, an extraordinary lack of leadership, choosing a vaccine with the lowest efficacy available, refusing help from the international community with the vaccines, until it was too late, and showing extreme cowardice by keeping the door to tourism closed for far too long, and then opening with draconian restrictions, were huge mistakes, and someone needs to be held responsible. Perhaps this is part of the reason Prayuth was dismissed? 

 

 

 

Edited September 27, 2022 by spidermike007

[rbkk]

SCB Bank rang my wife 2 weeks ago and said "Do you want a Speedycash Card?" She said OK and it arrived last week with a 300,000 baht limit at 22%. I almost spat my tea out on hearing the news!

[superal]

Some informative and interesting posts here . What I would like to know as a layman 1/ Is the Baht being supported by its foreign reserves 2/  Although there has been some wavering of the Baht , it is still holding its own , so is it being supported to keep the hi-sos happy ? 3/ How can a true household GDP be assessed in Thailand , when there are so many family homes that are not much more than a shack and the families are mostly unknown to the government . 4/ Even now , to buy a new car can be done with low deposits and nearly new cars with zero deposit and we see these cars parked at a shack . Many Thais think only about today and Buddhism will see them through .  5/ Any predictions on whether the Baht will crash and if so when ?