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15 Jul 2009

Financial Markets

Impact of Government Savings Bonds on Thai Banking Liquidity and Interest Rates (Business Brief No.2559)

KASIKORN RESEARCH CENTER (KResearch) views that the overwhelming response by Thai savers and investors to the recent government savings bond offerings reflects clear demand for low-risk instruments that offer more attractive returns amid this ongoing recession and the record low deposit interest rates offered by commercial banks. Although the amounts taken from deposits for investment into these savings bonds, or debentures issued by private sector, or other financial instruments etc., might affect the level of liquid assets the liquid assets within the Thai banking system (the first reduction in eight months was seen in May), it is expected that this liquidity reduction will be gradual, thus liquidity outstanding will likely remain relatively high in the near future.

Nonetheless, liquid assets might not be the only factor to influence banks' in their decision-making toward increasing deposit rates. Loan demand and competition between banks to secure long-term deposits will tend to play a role in determining the deposit rate direction, in particular when banks begin to see signs of recovery in loan expansion. As a result, some have already begun to offer long-term deposit products that carry higher interest rates to retain their customer base. KResearch views that once the economy starts to show convincing signs of recovery, banks will likely roll out more special long-term deposit products as alternative savings vehicles for all savers.

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