Quantitative easing (QE) is an unconventional form of monetary policy tool which is typically used by central banks of many countries and regions, including the United States, Europe, the UK and Japan, in helping address their economic woes after having to cut their policy interest rates to near 0%. The form and size of Central Banks’ financial asset purchases under QE programs vary depending on the nature and context of the economic and financial systems of a country.
For Thailand, the country's policy interest rate has currently stabilized at 0.50%, which leaves little room for policy rate cuts. As the recovery of the Thai economy remains uncertain and will likely take a while, monetary and fiscal accommodative measures will continue to be imperative in helping ease the impacts from economic problems and in supporting the economic mechanism so that it can fully bounce back to normalcy. Given this, it might be necessary for the relevant Thai authorities to explore new monetary tools to support their monetary policy mechanism.
Having specifically assessed the asset purchase measure, KResearch is of the view that, in legal terms, the asset purchase measure or QE can be implemented in Thailand, but the rationale and details of this measure must be clearly communicated to the general public. Emphasis must also be placed on whether QE is suitable for the Thai economic system or not, particularly in maintaining stability and confidence in the Baht. Additionally, QE may not be effective in addressing problems in the current Thai economy and business sector because the crux of such problems may not stem from the level of liquidity in the financial system, but rather from appropriate and timely distribution of liquidity to the sectors that are in more need. Currently, such sectors are beset by income shortfalls and excessively high credit risk.
KResearch believes that although the implementation of QE may help to keep borrowing costs through the money market low, it would not directly affect financial institutions in granting loans to customers, because the latter must consider credit risks, economic and businesses prospects, as well as monitor debt quality. As Thailand is a bank-based economy, the use of liquidity assistance mechanisms and other credit measures, along with credit risk reduction tools or mechanisms to enable customers to better obtain credit within the system will achieve better results than the implementation of QE.
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