OVERDRIVE

Fight back against cheap capital inflows

Thanong Khanthong

BANGKOK: -- Dr Virabongsa Ramangkura, who has the ears of the government, has come out yet again with his call for the Bank of Thailand to cut interest rates to stem capital inflows. Speaking at a Wednesday seminar, "Thailand's Economic Outlook 2013", hosted by the Thai Institute of Directors, he warned about asset price bubbles as a result of the present interest-rate policy of the Thai central bank. He suggested that the central bank slash its policy rate, now at 2.75 per cent, to narrow the gap with the US rate, and to put a lid on baht appreciation. By doing so, the Thai economy will not only gain in competitiveness from weaker exchange rates, but Thai asset prices would be spared the bubble.

newsjs

Virabong's argument sounds rather imprudent under the present abnormal situation in global finance. Many countries - including China, Brazil, South Korea and some in the the EU - are now expressing concern over the impact of the US Federal Reserve and the Bank of Japan's ultra-easy money printing policy. They are feeling the pinch from currency appreciation, which undermines their exports. And they are trying to shield themselves from the hot money by either considering imposing capital controls or moving away from the dollar as an international reserve to gold. None of these countries are pondering a policy to cut interest rates to enter the race of competitive devaluation. They are also worried about inflation as a result of the US-determined policy to debase the dollar.

At 2.75 per cent - similar to South Korea - Thailand's policy rate is almost the lowest in Asia, compared to 3 per cent for Malaysia, 3.50 per cent for the Philippines, 5.75 per cent for Indonesia, 9 per cent for Vietnam, 8 per cent for India and 6 per cent for China. Hong Kong and Taiwan's policy rates are among the lowest in the region, at 0.50 per cent and 1.88 per cent respectively.

At the same time, the euro zone is maintaining its policy rate at 0.75 per cent, against 0.10 per cent for Japan and 0.25 per cent for the United States.

The question is: How can Thailand and other emerging-market countries match the ultra-loose monetary policy of the US and Japan at a time when they also have inflation to worry about? Thailand's inflation this year is expected to reach 4 per cent. A further cut in the interest rate would widen the negative yield.

Late last year the Hong Kong dollar came under sustained attack, although the central bank rate was around 0.50 per cent. This forced the Hong Kong authorities to defend the HK dollar from breaking through the peg. They also introduced higher property taxes to stem speculation. Singapore followed suit with tax measures to stem property market bubbles. This shows that lower rates do not guarantee a slowdown of capital inflow under abnormal global financial conditions.

In Thailand, there are signs of stock market and property bubbles. The SET index surged almost 37 per cent last year. Property developers are announcing billions and billions worth of new projects, whose prices are getting way beyond the affordability of salary earners.

Strangely enough, the Thai authorities have yet to issue any complaints to the US Fed and Bank of Japan over their quantative easing (QE), or isuue serious warnings about asset price bubbles.

With the US economy contracting by 0.1 per cent in the fourth quarter of 2012, the Fed will be determined to continue its money printing through asset purchase to the tune of US$85 billion a month. The new government of Japan under Shinzo Abe is also determined to force the yen down in a hurry to boost Japanese exports. As a result, banks and money managers are borrowing cheap dollars or yen to speculate in global assets. They are creating asset bubbles unseen in the history of modern finance.

Emerging-market countries like Thailand will have no choice but to defend themselves against this currency war. Cutting the interest rate to counter capital inflows will prove futile. The only way to counter the onslaught of hot money is to introduce capital controls in the short and medium term and to create a new regional financial architecture in the longer run.

Capital controls can be implemented by slapping on a higher withholding tax for short-term money invested in the bond market, or higher taxes on property transactions. And it is long overdue for the government to introduce capital gains tax on the stock market. Stock investors have reaped enough profits from the Thai stock market. They have never paid any taxes.

QE will undermine the US dollar as the global reserve currency. Asia should be looking forward to creating a regional financial architecture to diversify away from the risks of sharp US dollar devaluation, which hurts its foreign reserves holdings. In this context, increasing the role of gold and the Chinese yuan in theregion should be a good starting point.

-- The Nation 2013-02-04

A very dramatic headline, which contains very simple answers.

Cut interest rates a bit, and increase taxes on property. Is this sooooooooo difficult. It is better for central banks to target inflation than currency value. At last with domestic inflation you have laws in your own hands.

Trying to fight the entire currency market is a losing battle. Like the bit about complaining about the actions of the FED or bank of japan. after Chinas conduct for the last 10 years, i don't think anyone will be listening.

A very dramatic headline, which contains very simple answers.

Cut interest rates a bit, and increase taxes on property. Is this sooooooooo difficult. It is better for central banks to target inflation than currency value. At last with domestic inflation you have laws in your own hands.

Trying to fight the entire currency market is a losing battle. Like the bit about complaining about the actions of the FED or bank of japan. after Chinas conduct for the last 10 years, i don't think anyone will be listening.

Increase property taxes? PTP's policies ALWAYS benefit themselves, so you might have a long wait to see that happen.

A very dramatic headline, which contains very simple answers.

Cut interest rates a bit, and increase taxes on property. Is this sooooooooo difficult. It is better for central banks to target inflation than currency value. At last with domestic inflation you have laws in your own hands.

Trying to fight the entire currency market is a losing battle. Like the bit about complaining about the actions of the FED or bank of japan. after Chinas conduct for the last 10 years, i don't think anyone will be listening.

Increase property taxes? PTP's policies ALWAYS benefit themselves, so you might have a long wait to see that happen.

There are 100s of construction companies in Thailand, not just ptp ones. Construction is roaring along and maybe the market needs some cooling down.

If they cut interest rates to slow the rise of the baht, this will feed the construction boom even more. If there is anything every Thai wants to avoid is a bust property market. Better to take some heat out now.

A very dramatic headline, which contains very simple answers.

Cut interest rates a bit, and increase taxes on property. Is this sooooooooo difficult. It is better for central banks to target inflation than currency value. At last with domestic inflation you have laws in your own hands.

Trying to fight the entire currency market is a losing battle. Like the bit about complaining about the actions of the FED or bank of japan. after Chinas conduct for the last 10 years, i don't think anyone will be listening.

Increase property taxes? PTP's policies ALWAYS benefit themselves, so you might have a long wait to see that happen.

There are 100s of construction companies in Thailand, not just ptp ones. Construction is roaring along and maybe the market needs some cooling down.

If they cut interest rates to slow the rise of the baht, this will feed the construction boom even more. If there is anything every Thai wants to avoid is a bust property market. Better to take some heat out now.

I was not referring to construction companies, but rather to wealthy landowners, and there are many amongst PTP Ministers and MPs.

A very dramatic headline, which contains very simple answers.

Cut interest rates a bit, and increase taxes on property. Is this sooooooooo difficult. It is better for central banks to target inflation than currency value. At last with domestic inflation you have laws in your own hands.

Trying to fight the entire currency market is a losing battle. Like the bit about complaining about the actions of the FED or bank of japan. after Chinas conduct for the last 10 years, i don't think anyone will be listening.

Increase property taxes? PTP's policies ALWAYS benefit themselves, so you might have a long wait to see that happen.

There are 100s of construction companies in Thailand, not just ptp ones. Construction is roaring along and maybe the market needs some cooling down.

If they cut interest rates to slow the rise of the baht, this will feed the construction boom even more. If there is anything every Thai wants to avoid is a bust property market. Better to take some heat out now.

I was not referring to construction companies, but rather to wealthy landowners, and there are many amongst PTP Ministers and MPs.

And the other sides of the political divide obviously have no land, so thats why they never bothered to tax it?

moving away from the dollar as an international reserve to gold.

Now theres a dangerous thing to try, look what happened to the last 2 leaders who suggested it, Sadam and Gaddafi.

Yes Mick lowering interest rates again (more than 1% in the last 3 months) only makes it easier for people to borrow and fuels an already rampent building and new vehicle boom.

Then when all those who have built cant sell or rent the places they have built and some vehicle owners cant meet the payments then BOOM is the word.

et. Stock investors have reaped enough profits from the Thai stock market. They have never paid any taxes.

But, but, didn't someone get walloped for supposedly evading such non existant tax.

A very dramatic headline, which contains very simple answers.

Cut interest rates a bit, and increase taxes on property. Is this sooooooooo difficult. It is better for central banks to target inflation than currency value. At last with domestic inflation you have laws in your own hands.

Trying to fight the entire currency market is a losing battle. Like the bit about complaining about the actions of the FED or bank of japan. after Chinas conduct for the last 10 years, i don't think anyone will be listening.

You can't increase taxes on properties, Shinawatra family and cronies bought huge areas of land for future use. Really huge places of cheap land.

So they won't allow it.

moving away from the dollar as an international reserve to gold.

Now theres a dangerous thing to try, look what happened to the last 2 leaders who suggested it, Sadam and Gaddafi.

Yes Mick lowering interest rates again (more than 1% in the last 3 months) only makes it easier for people to borrow and fuels an already rampent building and new vehicle boom.

Then when all those who have built cant sell or rent the places they have built and some vehicle owners cant meet the payments then BOOM is the word.

Both wanted to trade oil and gas in Euro (or other currencies). That idea wasn't healthy.....

et. Stock investors have reaped enough profits from the Thai stock market. They have never paid any taxes.

But, but, didn't someone get walloped for supposedly evading such non existant tax.

There is a tax on cap gains I pay it often

A very dramatic headline, which contains very simple answers.

Cut interest rates a bit, and increase taxes on property. Is this sooooooooo difficult. It is better for central banks to target inflation than currency value. At last with domestic inflation you have laws in your own hands.

Trying to fight the entire currency market is a losing battle. Like the bit about complaining about the actions of the FED or bank of japan. after Chinas conduct for the last 10 years, i don't think anyone will be listening.

You can't increase taxes on properties, Shinawatra family and cronies bought huge areas of land for future use. Really huge places of cheap land.

So they won't allow it.

I mean properties as in sale of buildings and condos. Land should be taxed too, but that its a different issue. If they are worried about making properties become a bubble by dropping interest rates, then tax the transactions more.

et. Stock investors have reaped enough profits from the Thai stock market. They have never paid any taxes.

But, but, didn't someone get walloped for supposedly evading such non existant tax.

There is a tax on cap gains I pay it often

So the writer is talking out of his behind.

moving away from the dollar as an international reserve to gold.

Now theres a dangerous thing to try, look what happened to the last 2 leaders who suggested it, Sadam and Gaddafi.

If what you say is really related, then PTP should be encouraged to go for it

Increase property taxes? PTP's policies ALWAYS benefit themselves, so you might have a long wait to see that happen.

There are 100s of construction companies in Thailand, not just ptp ones. Construction is roaring along and maybe the market needs some cooling down.

If they cut interest rates to slow the rise of the baht, this will feed the construction boom even more. If there is anything every Thai wants to avoid is a bust property market. Better to take some heat out now.

I was not referring to construction companies, but rather to wealthy landowners, and there are many amongst PTP Ministers and MPs.

And the other sides of the political divide obviously have no land, so thats why they never bothered to tax it?

You suggested an increase on property taxes now, and I explained why this will not happen. Previous administrations have no relevance to what is happening NOW.

I again state that there has never been a PTP policy that would reduce the incomes or otherwise adversely affect its members, though I can think of several that have had the opposite effect. If you can think of one, please enlighten me.

Being a smart Doctor and all, wonder how many Dollars he bought in the past month? The "good advice" givers kept quiet for a couple weeks, got themselves organized before giving good advice.

The Baht will weaken a bit more and not to worry, Yingluck will keep us informed.

Are we are witnessing the deliberate, incremental shift back to 25 to the Dollar?

Just my rough recollection from memory since around 2006/2007.

35 dumped to 34/33

34/33 dumped to 31/32

31/32 dumped to 28/29, coming back to 30.x., a brief stint at 31.x before resting again at 30.x.

Current dump to 29.X and opinion is it will hover 30/29 this year.

Next waypoint IMO is US debt ceiling in March..... will we see 28/27?

5 years from now, we'll be reminiscing about the good old days of 29.~30.

et. Stock investors have reaped enough profits from the Thai stock market. They have never paid any taxes.

But, but, didn't someone get walloped for supposedly evading such non existant tax.

There is a tax on cap gains I pay it often

For individuals invested in the Thai Stock market there is no capital gains tax.

moving away from the dollar as an international reserve to gold.

Now theres a dangerous thing to try, look what happened to the last 2 leaders who suggested it, Sadam and Gaddafi.

Yes Mick lowering interest rates again (more than 1% in the last 3 months) only makes it easier for people to borrow and fuels an already rampent building and new vehicle boom.

Then when all those who have built cant sell or rent the places they have built and some vehicle owners cant meet the payments then BOOM is the word.

Both wanted to trade oil and gas in Euro (or other currencies). That idea wasn't healthy.....

You are correct that Sadam was talking about wanting Euro's for his oil but Gaddafi wanted to change to gold.

If I understand correctly he had already held some conferences on the matter, mostly among African countries and was getting a fair bit of support

In both cases it was related to reserve currency.

Consider what would happen to the US$ if oil trading was in something else and the $ was dropped as the reserve currency.

© Doomburger

In a surprise announcement today, Monday 4th February, Mr. Kittirat, the Thai Finance Minister stated that Thailand was seeking the agreement of ASEAN to make rice the reserve curreny of the region.

Almost all counties in the economic area are rice producers with an stake in the game although New Zealand and Singapore will be certain to oppose it.

Speaking at his massive rice silos in the lower east Mr. Kittirat expanded "It makes perfect sence for Thailand, as a devloping nation to insulate itself against aggressive currency movements financed by the West. By switching to rice we will create a new reserve currency linked directly to the trading value of Hom Mali at the Agricultural Commodities Exchange of Thailand. That will give us a massive lead over our neighbours with our huge new "currency" reserves and a the same time will force trading partners in the West to purchase millions of tonnes to be able to continue trading with the ASEAN market."

Currency analyst at Routers, Mister Gohok Srikhaow opined "There appears to have already been an ISO currency code (Unit of Hom Mali - UHM) registered for this eventuality and in this world of electronic banking it will be relatively simple to add the currency to computer systems and select a clearing partner affiliated to the BoT.

© Doomburger

In a surprise announcement today, Monday 4th February, Mr. Kittirat, the Thai Finance Minister stated that Thailand was seeking the agreement of ASEAN to make rice the reserve curreny of the region.

Almost all counties in the economic area are rice producers with an stake in the game although New Zealand and Singapore will be certain to oppose it.

Speaking at his massive rice silos in the lower east Mr. Kittirat expanded "It makes perfect sence for Thailand, as a devloping nation to insulate itself against aggressive currency movements financed by the West. By switching to rice we will create a new reserve currency linked directly to the trading value of Hom Mali at the Agricultural Commodities Exchange of Thailand. That will give us a massive lead over our neighbours with our huge new "currency" reserves and a the same time will force trading partners in the West to purchase millions of tonnes to be able to continue trading with the ASEAN market."

Currency analyst at Routers, Mister Gohok Srikhaow opined "There appears to have already been an ISO currency code (Unit of Hom Mali - UHM) registered for this eventuality and in this world of electronic banking it will be relatively simple to add the currency to computer systems and select a clearing partner affiliated to the BoT.

Keywords in the whole statement are " insulate itself ".

Congratulations Mr Kittirat with your idiot statement.

Oh, you wanted to get rid of the rotting rice you're solved up with thanks to your other brilliant idea, the rice scam scheme

You have major speculative money inflows which have a twofold purpose. One is to obtain a better rate of interest on bonds than that available in the US, UK, EU & Japan. The second is to invest in the Thai stock market which has been booming.

Cutting interest rates may help indirectly but not much I suspect & will certainly fuel borrowing here bringing a bubble even closer. I agree with Mr Siamwalla that some form of capital controls should be imposed to directly target the speculative money, but please, on large sums - not like the previous attempt which was poorly thought out.

© Doomburger

In a surprise announcement today, Monday 4th February, Mr. Kittirat, the Thai Finance Minister stated that Thailand was seeking the agreement of ASEAN to make rice the reserve curreny of the region.

Almost all counties in the economic area are rice producers with an stake in the game although New Zealand and Singapore will be certain to oppose it.

Speaking at his massive rice silos in the lower east Mr. Kittirat expanded "It makes perfect sence for Thailand, as a devloping nation to insulate itself against aggressive currency movements financed by the West. By switching to rice we will create a new reserve currency linked directly to the trading value of Hom Mali at the Agricultural Commodities Exchange of Thailand. That will give us a massive lead over our neighbours with our huge new "currency" reserves and a the same time will force trading partners in the West to purchase millions of tonnes to be able to continue trading with the ASEAN market."

Currency analyst at Routers, Mister Gohok Srikhaow opined "There appears to have already been an ISO currency code (Unit of Hom Mali - UHM) registered for this eventuality and in this world of electronic banking it will be relatively simple to add the currency to computer systems and select a clearing partner affiliated to the BoT.

Mr. Gohok?

you do realise that nothenation is a spoof?

I mean properties as in sale of buildings and condos. Land should be taxed too, but that its a different issue. If they are worried about making properties become a bubble by dropping interest rates, then tax the transactions more.

That has the disadvantage that people who want to have their own condo can't afford it. I think tax on land would help a lot more in cases where rich buy huge areas. But of course it wouldn't help much at buildings and condos. To make the requirements for credits more difficult might help.

I mean properties as in sale of buildings and condos. Land should be taxed too, but that its a different issue. If they are worried about making properties become a bubble by dropping interest rates, then tax the transactions more.

That has the disadvantage that people who want to have their own condo can't afford it. I think tax on land would help a lot more in cases where rich buy huge areas. But of course it wouldn't help much at buildings and condos. To make the requirements for credits more difficult might help.

Well, there isn't so much a speculative bubble in land itself, so its different. But yes, it should be taxed.

What they need to do, if they drop interest rates, to prevent any real excess in borrowing to buy property. Everyone knows that once a property bubble busts, the consequences are very serious and longterm. Gently deflating any bubble should they drop interest rates is important.

Reality is, buying a condo isn't a human right, but to afford a 2mn baht condo, what salary should you show and what would be the repayment?

Edited February 4, 201313 yr by Thai at Heart

© Doomburger

In a surprise announcement today, Monday 4th February, Mr. Kittirat, the Thai Finance Minister stated that Thailand was seeking the agreement of ASEAN to make rice the reserve curreny of the region.

Almost all counties in the economic area are rice producers with an stake in the game although New Zealand and Singapore will be certain to oppose it.

Speaking at his massive rice silos in the lower east Mr. Kittirat expanded "It makes perfect sence for Thailand, as a devloping nation to insulate itself against aggressive currency movements financed by the West. By switching to rice we will create a new reserve currency linked directly to the trading value of Hom Mali at the Agricultural Commodities Exchange of Thailand. That will give us a massive lead over our neighbours with our huge new "currency" reserves and a the same time will force trading partners in the West to purchase millions of tonnes to be able to continue trading with the ASEAN market."

Currency analyst at Routers, Mister Gohok Srikhaow opined "There appears to have already been an ISO currency code (Unit of Hom Mali - UHM) registered for this eventuality and in this world of electronic banking it will be relatively simple to add the currency to computer systems and select a clearing partner affiliated to the BoT.

Mr. Gohok?

you do realise that nothenation is a spoof?

Or perhaps borrow an idea from the late Douglas Adams, and adopt the leaf, as the new national currency ?

Thus ensuring that almost-all Thais might finally be rich, if not within six months of voting PTP, as promised by the not-the-PM in Dubai ?

A very dramatic headline, which contains very simple answers.

Cut interest rates a bit, and increase taxes on property. Is this sooooooooo difficult. It is better for central banks to target inflation than currency value. At last with domestic inflation you have laws in your own hands.

Trying to fight the entire currency market is a losing battle. Like the bit about complaining about the actions of the FED or bank of japan. after Chinas conduct for the last 10 years, i don't think anyone will be listening.

You can't increase taxes on properties, Shinawatra family and cronies bought huge areas of land for future use. Really huge places of cheap land.

So they won't allow it.

I mean properties as in sale of buildings and condos. Land should be taxed too, but that its a different issue. If they are worried about making properties become a bubble by dropping interest rates, then tax the transactions more.

There is a pretty healthy tax on a sale of a property in place now. If you are selling aproperty that you have not owned for more than 5 years, somebody has to pay 8% of purchase price.

Edited February 4, 201313 yr by dcutman

A very dramatic headline, which contains very simple answers.

Cut interest rates a bit, and increase taxes on property. Is this sooooooooo difficult. It is better for central banks to target inflation than currency value. At last with domestic inflation you have laws in your own hands.

Trying to fight the entire currency market is a losing battle. Like the bit about complaining about the actions of the FED or bank of japan. after Chinas conduct for the last 10 years, i don't think anyone will be listening.

You can't increase taxes on properties, Shinawatra family and cronies bought huge areas of land for future use. Really huge places of cheap land.

So they won't allow it.

I mean properties as in sale of buildings and condos. Land should be taxed too, but that its a different issue. If they are worried about making properties become a bubble by dropping interest rates, then tax the transactions more.

There is a pretty healthy tax on a sale of a property in place now. If you are selling aproperty that you have not owned for more than 5 years, somebody has to pay 8% of purchase price.

i know, the issue is trying to avoid a property asset bubble. This is what governments do, simple as that. Is it s massive bubble yet? Don't think so, but that's what they said about Ireland.

Drop rates, make property slightly less attractive to calm any possible overheating by dropping interest rates to stop the baht getting to strong.

Its called managing the economy.

Property bubble in Thailand? Not today, but it could be tomorrow. It does happen that fast. I doubt Banks in Thailand are all that much different, than anywhere else in the world.

As I recall just lat week, "There is no evidence of hot Money coming into Thailand".

That seems to have changed a bit, now.

The gullibility on here surprises sometimes!!!

et. Stock investors have reaped enough profits from the Thai stock market. They have never paid any taxes.

But, but, didn't someone get walloped for supposedly evading such non existant tax.

There is a tax on cap gains I pay it often

So the writer is talking out of his behind.

No the writer is correct....there are zero cap gains tax for individual stock holders in Thailand, whether they be foreign or Thai nationals