The financial market should brace for even more capital inflows after the US Federal Reserve adopted a new policy tieing the near-zero interest rate to unemployment and Japan's election hinted at more aggressive economic stimulus.
Fed chairman Ben Bernanke announced late last week it would keep the interest rate at near zero until unemployment falls to 6.5%, down from 7.8% currently. The Fed also beefed up its third round of quantitative easing to $85 billion per month by adding $45 billion of Treasury bill purchases to $40 billion of mortgage-backed securities subscriptions, saying it would keep buying until the labour market improved.
Meanwhile, the tentative result of Shinzo Abe's Liberal Democratic Party likely winning increased the likelihood Japan will launch more stimulative monetary programmes as announced in his campaign pledges.
Prasarn Trairatvorakul, the Bank of Thailand governor, said these developments might lead to increasing foreign capital inflows, which the central bank could find more difficult to handle.
"There is more than interest rates to consider regarding the US labour market. We also might see a monetary injection in Japan," he said. "Consider this is happening amid credit growth of 15% and the Stock Exchange of Thailand's 30% increase in returns. An interest rate increase will result in the central bank having to run more losses."
Mr Prasarn was referring to the central bank's measures to buy dollars to stem baht appreciation during huge foreign capital inflows, which would require it to issue more baht-denominated bonds.
The Monetary Policy Committee recently cut the policy interest rate to 3% to "sustain" economic growth, he added. "The interest rate is on par or slightly lower than average inflation, so the monetary policy stance is easy," said Mr Prasarn.
The yen weakened against the dollar upon news of the election outcome, but assistant governor Chantawan Sujaritkul said the yen might not weaken much against regional currencies as it has remained a safe haven for investors.
Central bank officials are expecting the economy to have stable growth next year, levelling off at 4.7% from 5.6% this year.
Roong Mallikamas, a senior economist, said the nationwide minimum wage hike will affect the private sector more next year than the seven-province version enacted in April.
The central bank estimated the average wage increase is 17% this year as firms adjusted to the wage hike by cutting back on other remunerations. A tight labour market has prevented layoffs.
Firms are projected to increase their effective wages by more than 20% in 2013, and some firms in remote provinces may not comply with the law, said Ms Roong. Small and medium-sized enterprises in remote areas would be hardest hit as wages rise from a lower base.