Risks from the slow domestic economic recovery could hurt the private sector's financial position and debt-servicing ability as well as add risks to financial institutions, says the Bank of Thailand.
The concerns were raised during yesterday's joint meeting between the central bank's Monetary Policy Committee (MPC) and the Financial Institutions Policy Committee.
"In addition, uncertainty over the global economic recovery and the US Federal Reserve's rate hike could induce greater volatility in global financial markets," the central bank said in a statement.
Despite the downbeat statement, Bank of Thailand spokesman Chirathep Senivongs Na Ayudhya said there were no additional measures to alleviate these concerns at the moment.
The central bank last week slashed its economic growth forecast for this year to 3% from 3.8% predicted in March, saying export growth had slowed, private consumption remained tepid and private investment was weak.
The joint meeting opined that risks to Thailand's economy and financial stability had increased in accordance with the slow recovery, which could deteriorate commercial banks' asset quality and the private sector's debt-servicing ability.
Greater downside risks, however, do not translate into structural risks, as banks have accumulated high capital buffers and loan-loss reserves, while financial conditions of major companies remain positive, acting as a cushion against economic risks.
Concerns are mounting over Thailand's individual and small and medium-sized enterprise borrowers, Moody's Investors Service said recently.
Although the global economy remains fragile, Thailand's financial market has experienced limited volatility, the central bank statement said.
Charl Kengchon, managing director of Kasikorn Research Center, said the central bank had two main tools up its sleeves for implementation — the policy interest rate and foreign exchange — and the MPC was expected to observe economic data in the second quarter before deciding on movement of the benchmark interest rate.
Export data, effects of the drought and the impact from Middle East respiratory syndrome are some of the main areas for the committee's assessment, he said.
Mr Charl said a rate cut could occur, given the lower-than-expected growth figures in the second quarter and some expectations the Fed would not begin raising its funds rate in September.
Household debt could increase, as retail loans in the first quarter remained higher than GDP growth, he said, adding that the higher debt would come from middle- and upper-income consumers.