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 ECONOMY -
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Low interest rates hasten restructuringParista Yuthamanop Low interest rates and a stable baht throughout the first half helped give private companies needed breathing room to consolidate their operations and move forward with restructuring. Policy makers are intent on keeping an eased monetary policy stance for the rest of 2000 to help support economic growth and debt restructuring. One key initiative taken by the Bank of Thailand in the first half was the beginning of its new inflation-targetting system for setting monetary policy. On May 23, the Monetary Policy Board announced a core inflation target of 0-3.5% annually until the end of 2002. The target excludes raw food and energy prices. Regulators will set interest rate policies, through 14-day repurchase rates, in a bid to meet the inflation target. April inflation stood at 1.2% from the year before, with core inflation for the first quarter at around 1% from the same period in 1999. The nine-person Monetary Policy Board is chaired by the central bank governor, and also includes two deputy governors, four bank officials and two outside economists. Under a revised Bank of Thailand Act, the policy board, which meets every six weeks, will be comprised of six independent appointees. Inflation targets will also be presented to the cabinet for final approval. Central bank economists projected that the current policy stance targets economic growth of 4.5-5.5% per year over the next two years. Policy makers hope that open disclosure of inflation and interest rate targets will assist the private sector in drawing up business and investment plans over the medium-term. The central bank also announced changes to its open market operations with the appointment of nine primary dealers to serve as counterparties with the bank in the money markets.
One factor closely eyed by local economists are interest rate movements in the United States. The Federal Reserve has raised short-term rates progressively since 1999 in a bid to bring the US economy to a gradual slowdown. But even with US Fed Fund rates at a relatively high 6.5%, Thai officials say the impact on the country's balance of payments has been relatively mute. Many companies have moved to refinance their overseas debt to take advantage of lower baht rates, helping lead to an average capital account deficit of $1.3 billion per month since January. But central bank officials say the outflows remain manageable, with existing controls on offshore foreign exchange transactions and overseas investment, coupled with a healthy trade surplus, helping maintain relative stability currency. Bond market activity continued to be strong in the first half as top corporations sought to raise funds to settle foreign obligations. Nearly 70 billion baht worth of new corporate issues was made in the first quarter. According to the Thai Bond Dealing Centre, total outstanding bonds in the secondary market stood at 1.1 trillion baht at the end of March, helping offset the continued contraction in bank lending. With bank lending still sluggish, short-term rates throughout the first half remained relatively low at around 0.5-1.5%. New state debt issues to finance the 2000 fiscal deficit are also expected to come into the market over the third quarter. |
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