Market News

By Suttinee Yuvejwattana

(Bloomberg) -- Thailand central bank’s interest rate cut last week was a “recalibration” that was appropriate and doesn’t mark the start of an easing cycle, according to Governor Sethaput Suthiwartnarueput.

“We do not see it as the beginning of an extended easing cycle,” the governor said at the Institute of International Finance forum in Washington on Tuesday, reiterating central bank’s statement on Oct. 16. In arriving at a 25-basis-point rate cut on Oct. 16, policymakers assessed that financial stability risks from such a move “has gone down because financial conditions in Thailand have tightened quite a bit,” he said.

The governor’s latest remarks suggesting that the monetary authority will take its time in reducing borrowing costs set the BOT on a sustained collision course with the government of Prime Minister Paetongtarn Shinawatra that continues to push for lower interest rates to energize a sluggish economy. Southeast Asia’s second—largest economy lags the expansion of its neighbors, hobbled by massive household debt and a manufacturing sector hurting from cheap imports coming mostly from China.

For trade- and tourism-reliant Thailand, China’s slowdown hits the economy directly but what’s even more worrisome, according to the governor, are “indirect effects that we’re starting to see now, too.” Those include China-made goods competing with Thai exports, he said. That increased competition is partly why Sethaput sees Thailand’s long-term growth potential at a modest 3%.

The 14% gain in the baht during the July-September period was closely-watched as the currency’s best quarterly performance since the Asian financial crisis made the country’s key exports and tourism sectors less competitive.

The BOT doesn’t have a target for the baht but it doesn’t want to see too much volatility nor moves that are “too rapid” and not backed by fundamentals, the governor said.

“We’ve seen very, very high volatility, more than we would like to see on the baht,” he said. Trading in some Asian markets are very thin “so it doesn’t take a whole lot of flow to move the rates a lot.” Thus, “the risks of having too much volatility is real,” said the governor.

(Updates with more comments on China’s economic slowdown and baht volatility.)