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6 Jun 2014


ECB’s Monetary Policy Easing: Welcome News for Thai Exports (Business Brief No.3504 Full Ed.)

The European Central Bank (ECB) resolved on June 5, 2014 to cut their benchmark interest rate to a historic low of 0.15 percent, together with the deposit rate to the uncharted negative territory of (-)0.10 percent - which will be applicable to depositing banks' average reserve holdings in excess of the minimum reserve requirements and other deposits held with the Eurosystem – and the marginal lending rate to 0.40 percent, effective June 11, 2014.
The ECB also launched a combination of measures to revive the Eurozone economy. The package includes:
1) EUR400 billion in targeted long-term refinancing operations (TLTROs), aimed at boosting bank lending to households and non-financial companies;
2) Suspension of the sterilization of liquidity per the previous Securities Market Program (SMP), which will add more than EUR170 billion in liquidity to the system; and,
3) Intense preparatory work to pave the way for the purchase of asset-backed securities (ABS).
We at KResearch are of the view that the ECB's monetary policy easing and signals toward further actions ahead will help resurrect the Eurozone economy to grow perhaps 1 percent in 2014, up from contractions seen over the past two years. Given positive economic growth there, we expect that Thai exports to the Eurozone would expand over 5 percent YoY, bettering the overall export performance for 2014.

Meanwhile, Thai financial market will be affected slightly by what will likely be global financial market volatility since some USD400 billion in liquidity is to be injected into the system following the ECB's decision to cut their deposit rate and cease sterilization of liquidity per the SMP. That liquidity should be on a par with the liquidity that rose during the five months when the US Fed purchased assets (QE) at the pace of USD85 billion/month only.

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