Spike in long-term govt bonds had limited impact on economy

The Bank of Thailand felt that a spike in long-term government bond yields had only a limited impact on the economy when it decided to keep its key rate at a record low last month, meeting minutes showed on Wednesday.

Long-term Thai bond yields moved in line with long-term US Treasury yields, the minutes said. Over the first quarter of 2021, 10-year Thai government bond yields rose 61.5 basis points, the sharpest quarterly rise in 12 years.

Most corporate bond issuers raised funds in the short maturity and could still do so as usual, while corporate credit spreads continued to decline, the minutes said.

On March 24, the BoT’s Monetary Policy Committee voted unanimously to leave the one-day repurchase rate at a record low of 0.50% for a seventh straight meeting after cuts in 2020 to support the economy hit by the coronavirus pandemic.

The “limited policy space” should be preserved to be used at the most effective time, and that BoT would ensure that exchange rate movement would not hinder the economic recovery, the minutes said. 

Last year, Southeast Asia’s second-largest economy shrank 6.1%, its deepest contraction in over two decades as tourism slumped. This year, the BoT forecast 3.0% growth, with 3 million foreign tourists.

“In the tourism space, where we used to get 40 million tourists a year, we’re looking at much longer horizon, something in the order of closer to four years until we’re back to those kinds of levels,” BoT Governor Sethaput Suthiwartnarueput said at the International Monetary Fund’s virtual spring meetings summit.

While coordination between the BoT and the finance ministry was a good thing, a balance needed to be struck, he said. “If there’s too much coordination, one can see that as being – how shall I put it – perhaps undermining the independence of the central bank, independence of monetary policy”.

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