BoT governor warns of financial system risk from ultra-low rates

BoT governor warns of financial system risk from ultra-low rates

Bank of Thailand Governor Veerathai Santiprabhob says emerging economies have become more vulnerable to exchange-rate volatility that hurt their companies. (Reuters file photo)
Bank of Thailand Governor Veerathai Santiprabhob says emerging economies have become more vulnerable to exchange-rate volatility that hurt their companies. (Reuters file photo)

WASHINGTON: Huge global capital flows and prolonged ultra-low interest rate policies of advanced nations have made it harder for emerging economies to protect their financial system, Bank of Thailand Governor Veerathai Santiprabhob said on Sunday.

Given a surge in the past decade of capital flows driven by global investors seeking "speculative returns," emerging economies have become more vulnerable to exchange-rate volatility that hurt their companies, he said.

"At times, exchange rates could serve as an amplifier of shocks in capital flows instead of being a stabiliser of shock in capital flows," Mr Veerathai said in a seminar on policy challenges for emerging market central banks.

"The movement of the exchange rate is an important channel for small, open economies and have a real impact on profit margins, competitiveness ... and survival of exporting firms."

Spillovers from ultra-loose monetary policies of advanced economies also risk undermining financial stability in emerging economies, Mr Veerathai said.

Emerging market central banks need to follow their advanced nations' counterparts in delaying normalisation of ultra-loose monetary policies to prevent their currencies from appreciating, he said.

"Because of this, emerging markets' monetary policies could be distracted from the core mandate of their domestic policy objectives," he said.

"A delay in the normalisation (of monetary policy) from the low-for-long rate environment could exacerbate financial system stability."

With household debt already at historically high levels and inflation subdued in their economies, emerging market central banks can look not just at inflation but financial stability in pursuing monetary policy, Veerathai said.

"Financial stability has to be given a more prominent role in monetary policy decisions," he said.


Do you like the content of this article?
COMMENT (39)

Thailand confirms return of Iranians held over 2012 bomb plot

Thailand confirmed on Thursday it had returned three Iranians jailed over a 2012 bomb plot in Bangkok, in an announcement that came after Tehran freed an Australian-British lecturer imprisoned for alleged spying.

18:53

Malaysia leader wins budget vote

Malaysia Prime Minister Muhyiddin Yassin survived a key test of his leadership on Thursday when he won enough support in parliament for his 2021 budget.

18:19

B40bn high-speed train contracts inked

The State Railway of Thailand on Thursday signed five more contracts, worth about 40 billion baht, for work on the Thai-Chinese high-speed railway project between Bangkok and Nakhon Ratchasima.

18:09