LUANG PRABANG, Laos: The Bank of Thailand says it is preparing to ease rules governing the foreign-exchange market and international reserves, giving it more scope to tackle the baht’s strength following a series of interest-rate cuts.
“The policy rate is low when compared with the region. … [We] will not be able to lower rates much further,” Governor Veerathai Santiprabhob told reporters, adding that negative interest rates would lead to structural problems.
Earlier this month the central bank lowered its one-day repurchase rates to 1.25%, the lowest level since the global financial crisis a decade ago.
The baht is Asia’s best-performing currency this year, rising nearly 9% against the dollar, and putting further pressure on exporters already affected by global trade tensions.
Mr Veerathai said the central bank would review foreign-exchange laws to allow greater flexibility, and to align regulations with new technological developments including digital currencies.
Outlining the central bank’s 2020-22 strategy, he said exchange-rate volatility was unavoidable because it is closely tied to unpredictable external factors.
He added that the BoT would look at ways to relax foreign reserve measures and let Thai businesses keep currencies abroad because the country already had sufficient international buffers.
Mathee Supapongse, deputy governor for monetary stability, said the central bank was also studying policies that could be deployed through non-financial institutions that would have a direct impact on the market. He did not give further details.
Mr Veerathai conceded that the central bank has limited space to deliver a “strong dose” of monetary policy.
“The key rate shouldn’t be negative, as it will create lots of structural problems,” he said.
The recent surge in the baht could be pushing the currency beyond what fundamentals dictate, and the exchange rate is likely to become more volatile, he said.
Gains in the baht and the US-China trade war have pressured the economy, which is forecast to grow by only 2.6% this year, the slowest pace since 2014.
Inflation of 0.1% in October was the lowest since June 2017, well below the central bank’s 1-4% annual target. Finance Minister Uttama Savanayana said earlier this month that the central bank has proposed to narrow the inflation band for next year to better manage monetary policy.
Mr Veerathai said inflation isn’t a big problem at present but financial stability risk has become a challenge for monetary policy.