Inflation targeting framework a boon for Thailand, says BOT
EconAug 28. 2020Titanun Mallikamas, assistant governor of the BOT’s Monetary Policy Group
By The Nation
The Bank of Thailand (BOT) has highlighted how its inflation targeting policy allows flexibility in pursuing multiple objectives, after its US counterpart adopted the same policy.
On Thursday, the US Federal Reserve announced a landmark switch to flexible inflation targeting – the same monetary policy used by Thailand.
Titanun Mallikamas, assistant governor of the BOT’s Monetary Policy Group, commented that the FED had changed its monetary policy framework to better align with new economic conditions.
The change will allow the bank to keep interest rates lower for longer, stimulating economic recovery to reduce unemployment.
The BOT’s Monetary Policy Committee (MPC) uses Thailand’s flexible inflation targeting framework to ensuring price stability in the medium term, and also to stabilise economic growth and preserve financial stability.
Flexible inflation targeting can take care of multiple policy objectives using different policy tools, depending on the nature and magnitude of shocks, explained Titanun.
In the current context, it allows the use of policy tools other than the interest rate, such as financial sector measures which include soft loans and debt restructuring, to ensure that growth, inflation, and financial stability objectives are met.
The BOT also routinely reviews the monetary policy framework to ensure it keeps pace with changing economic and financial environments, he added.
The Stock Exchange of Thailand (SET) Index closed at 1,323.31 today (August 28), down 3.50 points or 0.26 per cent. Total transactions amounted to Bt54.673 billion with an index high of 1,337.61 and a low of 1,319.45.
In the morning session, a stock analyst at Krungsri Securities expected the US Federal Reserve’s move to relax inflation policy while maintaining a low interest rate would push the index up to 1,335 before it fell back.
“Also, the index gained positive sentiment from news of a Covid-19 test kit,” he said.
The 10 stocks with the highest trade value today were MINT, PTT, KBANK, BBL, AOT, GULF, BAM, CPALL, SCB and SCC.
As of 4.30pm, the price of oil fell by US$0.02 or 0.05 per cent to $43.02 per barrel, while gold rose by $34.70 or 1.80 per cent, to $1,967.30 per ounce.
Other Asian indices were mixed:
Japan’s Nikkei Index closed at 22,882.65, down 326.21 points or 1.41 per cent.
China’s Shang Hai SE Composite Index closed at 3,403.81, up 53.69 points or 1.60 per cent, while the Shenzhen SE Component Index closed at 13,851.32, up 316.23 points or 2.34 per cent.
Hong Kong’s Hang Seng Index closed at 25,422.06, up 140.91 points or 0.56 per cent.
South Korea’s KOSPI Index closed at 2,353.80, up 9.35 points or 0.40 per cent.
Taiwan’s TAIEX Index closed at 12,728.85, down 68.46 points or 0.53 per cent.
Nakhon Ratchasima is still in crisis because the province has lost more than 70 to 80 per cent of working capital due to the Covid-19 outbreak, which has resulted in the stagnation of the provincial economy, chairperson of the local chamber of commerce Chatchawan Wongjohn said on Friday (August 28).
He added that discussions with local sectors revealed that more government stimulus measures are necessary to help revive the local economy, which will take at least two to three years to recover.
The meeting agreed that the government has to offer support to small businesses as soon as possible and that this has to be more on a long-term basis.
Thailand will not be fully reopened to foreign tourists along the lines of the so-called “Phuket Model” any time soon because the government has to consider too many details, deputy government spokesperson Traisulee Traisoranakul said on Friday (August 28).
She added that the government needs to consider many factors, including guidelines, screening processes and measures to prevent the spread of Covid-19 to ensure there is no second wave of infections.
She added that Phuket residents and Thai tourists can rest assured that no steps to reopen the country have been taken and that utmost precaution will be taken when borders are reopened.
According to the Phuket Model, tourists will be allowed to land on the island, but they will have to undergo a 14-day quarantine first and their travel zones will be limited. Entry will also only be limited to tourists from Covid-free countries.
U-shaped recovery forecast for Thailand, with GDP shrinking by 10 per cent
EconAug 28. 2020KResearch’s executive chairman Dr Charl Kengchon, centre, along with deputy managing director Thanyalak Vacharachaisurapol, second from left, deputy managing director, Dr Siwat Luangsomboon, right, assistant managing director Nattaporn Triratanasirikul, left, and assistant managing director Kevalin Wangpichayasuk, second from right, tell the press about the economic situation in the third quarter of 2020.
By The Nation
Kasikorn Research Centre (KResearch) believes that the Thai economy may have seen its trough in the second quarter based on a quarter-to-quarter basis.
The country’s GDP this year is expected to have a 10-per-cent contraction, while the economy is likely to show a U-shaped recovery compared to the same period last year.
The food and beverage, electrical appliances, hotel and restaurant sectors are still causes of concern.
Nattaporn Triratanasirikul, KResearch assistant managing director, said the Thai economy has been mired in uncertainty in the midst of the Covid-19 crisis, the strengthening of the baht and domestic political issues.
Hence, KResearch has revised down its Thai economic projection for 2020 to -10 per cent from the previous -6 per cent. Given the fluid situation, any economic recovery may be U-shaped, while policymakers face the dilemma of determining how to tackle the economic crisis.
On one hand, they must carefully consider the need for additional stimulus measures that are both timely and sufficient to sustain the economy – now at the base of the U shape – so the economy can emerge from the doldrums sooner rather than later. On the other hand, these measures, if implemented, come at a hefty cost and may balloon public debt. Moreover, the possibility of a second-wave of Covid-19 poses another challenge as the country is gradually reopened.
Though the government has future spending plans in place, they are primarily geared towards economic rehabilitation and job creation. Therefore, public debt is not a cause for concern at this time. Meanwhile, the Monetary Policy Committee may not cut its policy rate anytime soon and instead choose to respond to specific events it deems appropriate, especially after the debt moratorium measure expires in the third quarter.
Thanyalak Vacharachaisurapol, KResearch’s deputy managing director, said, “Loans within the Thai commercial banking system are projected to grow 6.5 to 8 per cent in 2020, compared to the 2.3-per cent pace reported at the end of 2019. Such atypically high growth has been driven by relief measures and increased loan applications from the business sector to enhance liquidity, rather than real economic activity. In fact, close attention must be paid to asset quality as NPLs may lean towards 3.5 per cent by the end of 2020, against 3.23-per cent recorded at the end of June 2020. Despite the government’s need to mobilise massive funds from the financial market, existing tools of the Bank of Thailand will likely help prevent any impact on interest rates within the system, while current deposits in the banking system have grown approximately 9 to 10 per cent over the figure for 2019.”
Moreover, the government is expected to issue measures to assist debtors whose financial burdens have increased, particularly in boosting employment for SMEs, following the first six to eight months during which the government issued liquidity boosting measures totalling Bt360 billion.
The effectiveness of these additional measures will depend on either customers’ level of credit risk mitigation, or the relaxation of risk assessment criteria of target customers for financial institutions. Aside from ample liquidity in the system, commercial banks’ capital remains robust, with a Tier 1 capital ratio of 15.8 per cent, greater than the minimum requirement of 8.5 to 9.5 per cent and even higher than that of many developed countries.
This ensures that the banking system will continue to serve as a leading mechanism in supporting customers during this crisis.
Regarding business trends, Kevalin Wangpichayasuk, KResearch assistant managing director, noted that while business income may have improved in certain areas in line with the gradual lifting of lockdown measures and the government’s stimulus packages, the situation is far from a return to normalcy.
The three business sectors deemed to be most vulnerable at present are: food and beverage, electrical appliances, and hotels and restaurants – these groups may be due to receive continued fina
The Stock Exchange of Thailand (SET) Index rose by 6.96 points, or 0.52 per cent, to 1,333.77 in morning session on Friday (August 28).
A stock analyst at Krungsri Securities expected the index to rise to 1,335 before falling from the US Federal Reserve‘s move to change its approach to inflation to support the US labour market and economic crisis, while still maintaining the interest rate at low level.
“Also, the index gained positive sentiment from the positive news of a Covid-19 test kit,” he said.
He recommended that investors buy stocks whose third-quarter performance will improve, such as CPF, GFPT, TU, ASIAN, KCE, HANA, DELTA, HMPRO, GLOBAL, DOHOME, COM7, JMT, CHG, BCH, PTG, PLANB, CBG and TASCO.
The SET Index on Thursday rose by 4.26 points, or 0.32 per cent, closing at 1,327 with total transactions of Bt52 billion from speculation in shares which gained positive sentiment.
The price of gold dropped by Bt50 per baht weight in morning trade on Friday (August 28), the Gold Traders Association reported.
As of 9.24am, the buying price of a gold bar was Bt28,550 per baht weight and selling price Bt28,650, while gold ornaments cost Bt28,030.84 and Bt29,150, respectively.
At close on Thursday, the buying price of a gold bar was Bt28,600 per baht weight and selling price Bt28,700 while gold ornaments cost Bt28,081.48 and Bt29,200, respectively.
The Chinese Gold and Silver Exchange Society said that Hong Kong gold price dropped by HK$150, opening at $17,830 (Bt71,865.93) per tael on Friday morning.
The Comex (Commodity Exchange) gold price to be delivered in December dropped by US$19.9, or 1.02 per cent, closing at $1,932.6 (Bt60,360.27) per ounce yesterday.
Gold price closed in negative territory from mass sell-offs of the metal after US Federal Reserve chairman Jerome Powell announced on Thursday changes to its approach on inflation. His remarks were in keeping with market expectation.
By The Washington Post · Rachel Siegel · NATIONAL, BUSINESS Federal Reserve Chair Jerome Powell on Thursday announced a major shift in the way the central bank aims to achieve maximum employment and stable prices, marking lessons learned from the most recent economic expansion.
The new approach signals that the Fed won’t increase interest rates to respond to low unemployment levels and also won’t worry as much about low rates triggering a rise in prices.
Speaking at the Fed’s yearly economic policy symposium in Jackson Hole, Wyo., Powell emphasized the Fed’s goal of reaching maximum employment. As the Fed debuted a long review of its monetary policy framework, the Fed concluded that inflation could temporarily run a bit over its 2% target if that means more Americans stay in and join the workforce.
“Our revised statement reflects our appreciation for the benefits of a strong labor market, particularly for many in low- and moderate-income communities, and that a robust job market can be sustained without causing an unwelcome increase in inflation,” Powell said in a statement.
In the years before the pandemic, the Fed grappled with how the unemployment rate could continue to fall without triggering an unwelcome rise in prices. Now, the Fed is officially signaling that employment can run stronger, and that the economy can run hot, without setting off unwanted spikes in inflation. Practically, that means the Fed won’t be raising interest rates anytime soon, and that the Fed wouldn’t increase rates or brace for a rise in inflation even as employment levels strengthen.
After the Great Recession, Fed leaders worried that as interest rates trended downward, the central bank would be left with less room to slash rates to zero in the event of another downturn. At the same time, central bank leaders worried about what to do about inflation persistently staying below the 2% target. Striking the right balance between interest rates and inflation is key to fostering an economy that grows at a steady pace and keeps Americans securely employed.
“With interest rates generally running closer to their effective lower bound even in good times, the Fed has less scope to support the economy during an economic downturn by simply cutting the federal funds rate,” Powell said. “The result can be worse economic outcomes in terms of both employment and price stability, with the costs of such outcomes likely falling hardest on those least able to bear them.”
When it comes to price stability, the Fed’s old rule book dictated that the moment inflation topped the 2% threshold, the Fed would quickly raise rates to bring inflation back down. Now, the Fed is adopting a form of average inflation targeting, which essentially means that the Fed will allow for some overshoot of the 2% target to balance out periods when inflation skirted below. Those overshoots will be moderate, Powell noted Thursday, and aren’t intended to last a long time.
“This change may appear subtle, but it reflects our view that a robust job market can be sustained without causing an outbreak of inflation,” Powell said in his Jackson Hole speech.
Now the question becomes how exactly the Fed can overshoot its inflation target. Battling the current recession, Fed leaders have said interest rates will stay at zero for some time. In a call with reporters after Powell’s speech, Adam Posen, president of the Peterson Institute for International Economics, said it may be a few years before this new approach is put to the test.
“It’s not fully operational until we get to the other side of this crisis,” Posen said. “We’ve got two big hurdles before that happens. One is, does inflation ever come back? And two, if it does come back, will the committee…carry through on this commitment that they’re not going to worry too much. And those are greatly unknown.”
The Fed announced a broad review of its monetary policy in November 2018. Last year, Fed leaders traveled the country for “Fed Listens” events to gauge how monetary policy was affecting the lives of workers groups, small-business owners, low- and moderate-income communities, and others. In a question-and-answer session after his speech, Powell said that the review allowed the Fed not only to sharpen its understanding of what brings people into the workforce and keep them there, but also to arrive at those answers with public input and transparency.
Back then, the Fed thought it was planning for a vastly different economy, one with historically low levels of unemployment and an economic expansion that was still running strong. Then the coronavirus outbreak and recession began, kicking tens of millions of Americans out of the workforce, forcing the Fed to quickly slash rates to zero and bringing massive uncertainty about the economy’s future.
The changes to the Fed’s thinking “explicitly acknowledge the challenges for monetary policy posed by a persistently low interest rate environment,” a Fed news release read. “Here in the United States and around the world, monetary policy interest rates are more likely to be constrained by their effective lower-bound than in the past.”
Markets rallied Thursday morning off Powell’s announcement, which spurred a 200-point rise in the Dow Jones industrial average and helped erase the Dow’s losses from this year.
The sudden recession has also put new pressure on the Fed to shepherd a recovery that lifts all Americans and narrow persistent racial and economic gaps. There’s no expectation that the Fed can heal the economy alone. But the crisis, and the run-up to Thursday’s announcement, have fueled a fresh examination of exactly what the Fed’s mandate means.
Having a firmer understanding of full employment is also key to reducing inequality, Powell said. For many minority and low-income communities, the benefits of the economic expansion did not arrive until much later in the years after the recession, and many of those gains were wiped clean during the current crisis.
Yet even the Fed’s new approach can’t change the fact that the central bank’s tools are blunt. Interest rates affect vast swaths of the economy, and the Fed is not set up to home in on certain segments of the population. In many cases, Powell said that “there are better tools held by elected officials” to address long-standing gaps.
“It needs to be an all of government, all of society kind of thing,” Powell said. “We’re going to keep doing what we can do. We really need it to be broader than just the Fed.”
Congress, meanwhile, is still stalled on another wave of federal aid. The stock market is flying high, but scores of unemployed Americans are scraping by without enhanced unemployment payments.
Powell has consistently said that a stable recovery depends on controlling the virus, which has been killing an average of more than 1,000 people each day in August. For weeks, Larry Kudlow, director of the National Economic Council, has said the economy is on a “self-sustaining” recovery and may not need additional stimulus to bounce back.
Julia Coronado, president and founder of Macropolicy Perspectives and a former Fed economist, said that many Americans are bypassed by the market and credit supports that are the Fed’s domain. During a conversation hosted Thursday by Employ America, Coronado said that the Fed’s arsenal is “increasingly not well-suited to the job … in a society characterized by extreme inequality.”
“Full employment is a truly macroeconomic outcome that, as Powell stresses, really means we’re getting to the people that are the most vulnerable,” Coronado said. “They’re the ones that suffer the most in a recession. They’re the last to realize the benefits of the expansion. The Fed doesn’t really have the best tools to get at that.”
That said, the Fed has taken significant steps to lessen the pandemic’s economic blow, by flooding the markets with liquidity and rolling out emergency lending programs for struggling local governments and midsize businesses. It’s unclear what the long-term effect of the moves will be, or when the Fed will be able to shut down those backstops. Powell and other Fed leaders have emphasized for months that a stable recovery will depend on controlling the virus and have repeated that more aid from Congress may be needed.
The Fed on Thursday also announced that it would conduct a public review of its monetary policy tools and strategy about every five years.
EconAug 28. 2020A subway train passes trough a Wall Street subway station during rush hour near the New York Stock Exchange in New York on June 17, 2020. CREDIT: Bloomberg photo by Michael Nagle.
By Syndication Washington Post, Bloomberg · Katherine Greifeld, Vildana Hajric · BUSINESS, US-GLOBAL-MARKETS U.S. stocks’ record-breaking rally continued and bond yields surged after Jerome Powell reiterated that the Federal Reserve will remain accommodative. The dollar climbed from a two-year low.
The S&P 500 reached an all-time high for a fifth day. The Nasdaq Composite also set a record before closing in the red. The yield premium demanded by investors on long-maturity U.S. debt compared to short-term notes increased to the most in two months after Powell said the Fed will seek inflation that averages 2% over time, a step that implies allowing for periods of overshoots. The financial and real estate sectors were the biggest gainers in the S&P, with banks seen benefiting from the higher yields. The benchmark index has surged about 56% from its March lows.
“Powell was hugely dovish,” said Peter Boockvar, chief investment officer for Bleakley Financial Group. “Then bonds woke up, said this guy wants higher inflation, sell!”
Abbott Laboratories jumped 8% after winning clearance for a 15-minute Covid test. Reports showed that U.S. weekly jobless claims remained above 1 million and the economy contracted slightly less than forecast in the second quarter.
“The takeaway for the real economy is that wages will be allowed to run higher which could benefit low-income households most affected by Covid-19,” said Nela Richardson at Edward D Jones & Co.
A bevy of central bankers and economists also spoke at the Fed’s Jackson Hole economic symposium via webcast, entirely viewable by the public for the first time.
Traders were also monitoring news of medical advancements for the coronavirus, from Moderna Inc.’s vaccine trials to the Abbott test that will be priced at just $5.
Crude oil declined as Hurricane Laura weakened while crossing over land in the refinery and LNG-rich Gulf of Mexico region. Gold retreated for the fourth time in five trading sessions.
Here are the main market moves:
Stocks
The S&P 500 Index increased 0.2% to 3,484.55 as of 4:03 p.m. EDT, hitting the highest on record with its sixth consecutive advance.
The Dow Jones industrial average advanced 0.6% to 28,492.07, the highest in about six months.
The Nasdaq Composite Index declined 0.3% to 11,625.34, the first retreat in more than a week.
The Stoxx Europe 600 Index fell 0.6% to 370.72, the biggest fall in a week.
Currencies
The Bloomberg Dollar Spot Index gained 0.2% to 1,171.71.
The euro dipped 0.1% to $1.1819.
The Japanese yen depreciated 0.6% to 106.61 per dollar, the weakest in two weeks on the largest drop in more than a week.
Bonds
The yield on two-year Treasurys increased one basis point to 0.16%, the highest in two weeks.
The yield on 10-year Treasurys climbed five basis points to 0.74%, the highest in more than 10 weeks on the largest surge in more than two weeks.
The yield on 30-year Treasurys climbed nine basis points to 1.50%, the highest in 10 weeks on the biggest surge in 12 weeks.
Germany’s 10-year yield gained one basis point to -0.41%, the highest in eight weeks.
Commodities
West Texas Intermediate crude fell 0.9% to $42.99 a barrel.
Gold weakened 1.2% to $1,930.53 an ounce, the largest drop in more than a week.
Copper increased 0.6% to $3 a pound, the highest in more than a week.
EconAug 28. 2020Tourism and Sports Minister Phiphat Ratchakitprakarn
By The Nation
Government ministries are studying guidelines to open areas of Thailand to foreign tourists, a source at Government House said on Thursday.
Representatives of the Tourism and Sports Ministry met with their counterparts at the Interior and Transport ministries to discuss the topic “Safe & Sealed Areas for Tourism”, said the source, adding that Tourism Minister Phiphat Ratchakitprakarn will lead a visit by ministers to Phuket on September 2-4.
The ministers will survey opinions of local people and businesses on Phuket reopening for foreign tourists, before sharing the findings with the Centre for Covid-19 Situation Administration.
Thai Airways International(THAI) announced on Thursday it plans to launch charter flights to Phuket from six international destinations in late November this year.
The six destinations are Denmark, Germany, Britain, South Korea, Japan, and Hong Kong.
THAI is also expected to fly charter flight tourists from China to Phuket.
The airline’s acting president, Chansin Treenuchagron, said the airline would operate flights twice a month or more on each route based on demand.
Meanwhile, another Government House source said executives of seven local airlines will meet Prime Minister Prayut Chan-o-cha today (August 28) to ask for government assistance amid the impact of the Covid-19 outbreak.
The move comes after representatives of several airlines met with Transport Minister Saksayam Chidchob to ask for relief measures.
Among their proposals were provision of soft loans, and extending the period of reduced jet fuel tax, which is set to expire next month. Jet fuel tax has been cut to Bt0.20 per litre from the normal Bt4.726 per litre.
Titanun Mallikamas, assistant governor of the BOT’s Monetary Policy Group 
KResearch’s executive chairman Dr Charl Kengchon, centre, along with deputy managing director Thanyalak Vacharachaisurapol, second from left, deputy managing director, Dr Siwat Luangsomboon, right, assistant managing director Nattaporn Triratanasirikul, left, and assistant managing director Kevalin Wangpichayasuk, second from right, tell the press about the economic situation in the third quarter of 2020. 
Federal Reserve Chair Jerome Powell/ File photo 
A subway train passes trough a Wall Street subway station during rush hour near the New York Stock Exchange in New York on June 17, 2020. CREDIT: Bloomberg photo by Michael Nagle. 
Tourism and Sports Minister Phiphat Ratchakitprakarn 
