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Thai central bank head warns of financial system risk from ultra-low rates

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Thai central bank head warns of financial system risk from ultra-low rates

 

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FILE PHOTO: Thailand's Central Bank Governor Veerathai Santiprabhob speaks during an interview with Reuters at the Bank of Thailand in Bangkok, Thailand, October 4, 2019. REUTERS/Matthew Tostevin

 

WASHINGTON (Reuters) - 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," 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, 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.

 

(Reporting by Leika Kihara; Editing by Lisa Shumaker)

 

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-- © Copyright Reuters 2019-10-21
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Pleas don’t just talk it will hurt the economy, it happens for so long. Take action, ACTION.

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13 hours ago, Matzzon said:

At least he have come up with an explaination that will eliminate him as a failure for keeping the value of the baht up too long. Now he can blame all the advanced nations. It´s thier fault, not mine!

He isn't keeping it up he just isn't driving it down for the reasons he mentioned, household debt is high enough as it is. Where it really matters Thailand has some very good people in charge and this man is one of them.

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5 hours ago, IAMHERE said:

The USA isn't in the lead to Negative Rates. You can google that to see countries already doing Negative Rates. So, the USA isn't taking the rest of the world anywhere, for once that America isn't the leader. You are probably correct with the QE comments though.

Negatives rates...

 

How about a positive rate of 0.5% and at the same time creating several percent of inflation?

 

Thats a negative real interest rate.

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To use an analogy to understand what Veerathai argues as to who is at fault for a distorted currency value:

  • Federal Reserve Governors for ten nations stand in a row, including Thailand.
  • Nine step back one pace to lower currency value by lowering interest rates.
  • Thailand's position remains unchanged.
  • Blame is placed on the Governors that stepped back.

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