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Baht/$ 34.95/10 (Bid/Ask)
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12,250
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BOND MARKET
POST REPORTERS
The Bank of Thailand should cut its benchmark interest rate and reduce its issuance of short-term bonds to help relieve liquidity pressures in the market and encourage commercial banks to boost lending, according to the Thai Bond Market Association.
Nattapol Chavalitcheevin, the president of the ThaiBMA, added that calls for the government to cut personal income and corporate taxes were well-intentioned but would likely have only a limited impact on stimulating the economy.
While corporate tax breaks would help the country's largest companies, smaller firms with more questionable governance and accounting procedures would reduce the overall effect of tax cuts on the economy.
Dr Nattapol said boosting confidence was critical for reviving economic growth and investment.
Concerns about tight liquidity conditions in the market were also overblown, considering that the central bank's outstanding short-term bonds in the market amounted to as much as 1.5 trillion baht.
As of October, local banks had 570 billion baht invested in central bank bonds, with another 200 billion in the bilateral repurchase market, representing funds that could instead be mobilised by financial institutions for new lending.
''We may be too concerned about the issue of liquidity. It's not a problem of lacking money, but rather one of confidence,'' Dr Nattapol said.
''The problem is that those with funds lack confidence. Banks do not want to lend, investors do not want to invest. Restoring confidence is the most critical issue facing the Thai economy at this time.''
Dr Nattapol said a rate cut by the central bank would help reduce returns in the short-term money market, putting greater pressure on financial institutions to shift their funds to the credit market.
Most analysts expect the Bank of Thailand to cut its one-day repurchase rate, now 3.75%, by up to a half-percentage point at its next meeting on Dec 3 in light of declining inflation and higher risks to economic growth.
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