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BOT predicts balance on capital inflows, outflows

The Bank of Thailand expects an eventual balance between capital inflow and outflow this year, with such a position likely to be even more clearly seen next year.

At the “TMB Wealth Banking: Investment Forum” held by TMB Bank yesterday, Atchana Waiquamdee, deputy governor of the central bank, said the volume of capital outflow would likely increase as Thai firms upped their overseas investment. Capital inflow, meanwhile will likely fall due to the narrowing of the interest-rate gap between markets.

However, capital flow remains volatile, she said.

The government has encouraged Thai companies to manage the risks from currency volatility and invest overseas, which could boost the outflow of capital, she added.

Atchana said the monetary policy of emerging Asian countries, including Thailand, was a key factor in terms of keeping inflation under control.

Inflationary pressure remains a concern for the global economy, she said. In the next one to two years, it could be an increasingly worrying factor in developed countries such as the US, the United Kingdom and Japan, which have been showing signs of economic improvement.

On seeing signs of high inflation, central banks will then employ monetary policy by hiking interest rates to tame rising prices, she said.

“The Libyan situation has not affected inflation much as yet. Next year, real demand for oil consumption could come from global economic improvement, and this could be a key driver for inflation,” the deputy governor said.

The Bank of Thailand has hiked the policy interest rate six times since last July in a bid to tame inflation. The rate now stands at 2.75 per cent.

The rate rises are expected to keep this year’s inflation under control, with prices then expected to decline next year, Atchana said.

Other risk factors to the global economy include the limited use of fiscal policy in each country and uncertainty over Europe’s economic recovery.

The US Federal Reserve learned from experience that the reduction of interest rates to help operators recover from past oil shocks past did not help pull down inflation. The US is, therefore, now an example of the limited use of fiscal policy in this regard, she said.

The US’s higher budget deficit rate of about 9 per cent of gross domestic product recently led Standard and Poor’s to cut the outlook on the country’s long-term rating from stable to negative, in what was a strong warning over Washington’s failure to tackle its deficit.

Atchana said Japan could stage a gradual economic recovery next year. However, many analysts expect the Japanese economy to shrink in the short term, when confidence in the country’s exports could fall due to concern over the ongoing nuclear crisis.

Source: The Nation

ThaiVest Editorial Team