Bank of Thailand governor Veerathai Santiprabhob has sounded the alarm over potential sharp market corrections based on a mismatch between market expectations and economic fundamentals.
The recent sell-off in global equities and bonds is an example of a market correction triggered by a mismatch between US economic readings and market expectations, he said.
"Such market corrections seemed to be a good thing as they happened before a bigger mismatch, which could lead to a sharp market correction in the future," Mr Veerathai said. "The correction is a wake-up call for all parties, including operators, investors and risk appraisers, to not be complacent when they see low volatility or risk in the market."
Veerathai: Evaluating risks is challenging
A market with mismatched views cannot be sustained, possibly leading to a sharp and fast correction, he said.
A global equity market rout and spike in US treasury yields were seen earlier this month as the better-than-expected US unemployment rate prompted investor concerns that the US Federal Reserve would hike the policy rate at a faster pace than expected.
The SET index plunged more than 60 points on the fears.
Mr Veerathai said risk evaluation is a challenge amid the ambiguous situation.
With the riskier environment, the central bank governor urged local business operators to pay more attention to higher risk management, particularly in interest and foreign exchange.
However, he placated concerns by saying that Thailand's solid fundamentals could provide a buffer to global financial market volatility to a certain extent, thanks to low foreign-denominated debt and the healthy financial position of the banking sector.
The country's foreign-denominated debt of both state and private sectors is still low at 36% of GDP, and international reserves exceed short-term foreign currency debt by 3.3 times and total foreign debt by 1.4 times.
The Thai banking sector has a strong non-performing loan coverage ratio of 172% and capital adequacy ratio (CAR) of 18.2%.
Moreover, Thailand's policy rate needn't immediately play catch-up with the benchmark rate hiked by its US counterpart, as each country has different economic fundamentals and domestic factors will play a large role in the Monetary Policy Committee's rate decision.
The MPC decided to keep its policy rate unchanged at 1.5% during last week's meeting. The benchmark rate has been held unchanged since a 25-basis-point cut in April 2015. The rate-setting panel assessed that the Thai economy continued to gain traction, driven by growth in external factors, as well as improvement in domestic investment and consumption.
Mr Veerathai said speculative activity surrounding the baht has eased after the central bank reprimanded some financial institutions. But the central bank will continue to monitor the situation.
"Following the central bank's reprimand, the situation has improved and we haven't found concentrated baht transactions," said the incumbent governor.
The baht's 3.1% gain has made it the third-best performer in Asia this year, trailing the Japanese yen (4.9%) and the Malaysian ringgit (3.3%).
Mr Veerathai said Thailand's economic growth was more broad-based and driven by exports, while improved imports in January also indicated growing domestic activity, though swelling household debt remains a concern.
In the meantime, he said banks will comply with the Bank of Thailand's request that they should refrain from digital currency transactions.
Banks are also prohibited from offering cryptocurrency exchanges, creating platforms for cryptocurrency trading, allowing clients to use credit cards to buy cryptocurrencies or advising customers on investment or trade in virtual currencies.