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WATCHDOG

It's time for Thailand to adopt same exit strategy as US

The US appears to have started its own "exit" strategy by jacking up its discounted interest rate from 0.5 per cent to 0.75 per cent last Thursday - a move that came earlier than expected.

Previously, the Federal Reserve or the US central bank repeatedly said it would keep its interest rates high until this November so as to avoid any negative impacts on the fragile economic recovery.

In reaction to the rate hike, stock markets in Asia, especially Japan and Hong Kong, dropped sharply, with the Nikkei and Hang Seng down 2 per cent and 2.6 per cent, respectively.

The Bank of Thailand however played down the US move, suggesting that the Monetary Policy Committee, which will meet on March 10, may not necessarily follow suit.

The Thai policy rate currently stands at 1.25 per cent.

Over the past year and a half, the US has adopted an unprecedentedly loose monetary policy, lowering the Fed Fund Rate to near zero in the wake of its economic crisis marked by the investment bank Lehman Brother going bankrupt in September 2008.

Massive amounts of funds were then injected into the financial system to prevent it from collapsing. In addition, there was a huge fiscal stimulus package amounting to more than US$700 billion (Bt23.23 trillion) to avert the repeat of a 1930s Great Depression.

As a result, the US economy started showing signs of recovery from last August after plunging deeply in the first two quarters of last year.

However, the recovery has not created any new jobs, with the latest unemployment rate standing at 9.7 per cent. Given this, analysts previously shared the opinion that the US would likely keep its rates exceptionally low until close to the end of the year.

Now that the discount rates have already been raised, the Fed Fund rate, which is 0 to 0.25 per cent, could also rise soon.

As far as inflation is concerned, an early rate hike could be seen as being pre-emptive because it will be significantly harder to rein in inflation later on, given the massive amount of funds injected into the US economy over the past year and a half.

Based on the latest US rate move, it's likely that Thai policy-makers will sooner rather than later follow suit by jacking up the policy rate from the current 1.25 per cent.

The government has also suggested that it would reduce fiscal borrowings to lower long-term public debts, given that tax-revenue collection is improving.

Prime Minister Abhisit Vejjajiva earlier said the Finance Ministry should be able to collect an additional Bt200 billion to Bt300 billion in taxes as a result of the economic recovery, which started in the second half of last year.

Due to the huge impact of the post-Lehman Brother United States as well as the global economic crisis, the Thai government last year came up with the Bt1.43-trillion Thai Khemkhaeng economic stimulus programme covering fiscal 2009-2011.

To finance the programme, the government would need Bt800 billion in total borrowings, with the second Bt400-billion borrowing bill now pending in Parliament.

With the additional tax revenue, the bill could be reviewed to reduce long-term public debts amid a recovering economy projected to grow 3.5 to 4 per cent this year.

In other words, it's time to start the country's exit strategy covering both fiscal and monetary measures.

-- The Nation 2010-02-20

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[Naam]

"Previously, the Federal Reserve or the US central bank repeatedly said it would keep its interest rates high until this November so as to avoid any negative impacts on the fragile economic recovery."

ah pity them journasslists hoo get it rong

[flying]

"Previously, the Federal Reserve or the US central bank repeatedly said it would keep its interest rates high until this November so as to avoid any negative impacts on the fragile economic recovery."

ah pity them journasslists hoo get it rong

errrm young Herr Naam have you not heard the age old US statement......

Do as I say not as I do

That aside I do not see how any country can interpret a 0.25% increase in the discount-rate as an exit strategy.

I guess they are banking on the journey of a thousand steps starts with an attempt to crawl

Edited February 20, 2010 by flying

[Naam]

"Previously, the Federal Reserve or the US central bank repeatedly said it would keep its interest rates high until this November so as to avoid any negative impacts on the fragile economic recovery."

ah pity them journasslists hoo get it rong

errrm young Herr Naam have you not heard the age old US statement......

Do as I say not as I do

That aside I do not see how any country can interpret a 0.25% increase in the discount-rate as an exit strategy.

I guess they are banking on the journey of a thousand steps starts with an attempt to crawl

it's not an interpretation by a country but by a journalist who makes a living by getting paid by the number of words he writes. his 'economic' knowledge can be judged by

quote: "...it would keep its interest rates high"

whether the repo hike by a quarter percent is significant or heralding a message for the future is of course open for discussions.

[SM7WGP]

Its funny but the Us is one of the Country's that should go for bankruptcy. the dollar is not worth the paper its printed on.

[hhgz]

"the dollar is not worth the paper its printed on."

Then you shouldn't have any problem giving me all of your worthless dollars.