BOT continues to ease monetary policy, government loan guarantees could ease small business credit crunch
By Jon Fernquest
Tarisa Watanagase, the
governor of the Bank of Thailand.(BOT) answered important
questions about the Thailand's monetary
policy and banking sector in a speech yesterday.The BOT was "ready to continue easing monetary policy amid falling inflation and rising risks to economic growth."
Over the past six weeks, the central bank has slashed its one-day repurchase rate by 175 basis points to 2%.
monetary
policy - controlling the growth and stability of an economy
by controlling the supply of money, availability of credit and loans,
and the cost of money (interest rate) นโยบายการคลัง การเงินของประเทศ
easing monetary policy, an expansionary monetary policy - monetary policy that tries to expand the money supply and increase the supply of credit in the economy, usually by lowering a policy interest rate that leads to the central injecting money and credit into the economy
loan guarantee, guarantee a loan - when the government (or someone else) promises to pay back a loan, if the borrower cannot pay the loan back (this may help the borrower get a loan or a lower interest rate on a loan)
credit crunch - a period when it is difficult to get loans
a Repurchase Agreement, REPO - selling a security and agreeing to buy it back in the future for a fixed price, central banks use repos to provide liquidity to the financial system, they inject money into banks and the economy by buying securities from banks, agreeing to sell them back in a week or two, this controls the money supply and inflation (See The Economist)
repurchase rate - the interest rate for loaning out these fund
easing monetary policy, an expansionary monetary policy - monetary policy that tries to expand the money supply and increase the supply of credit in the economy, usually by lowering a policy interest rate that leads to the central injecting money and credit into the economy
loan guarantee, guarantee a loan - when the government (or someone else) promises to pay back a loan, if the borrower cannot pay the loan back (this may help the borrower get a loan or a lower interest rate on a loan)
credit crunch - a period when it is difficult to get loans
a Repurchase Agreement, REPO - selling a security and agreeing to buy it back in the future for a fixed price, central banks use repos to provide liquidity to the financial system, they inject money into banks and the economy by buying securities from banks, agreeing to sell them back in a week or two, this controls the money supply and inflation (See The Economist)
repurchase rate - the interest rate for loaning out these fund
Small business credit crunch
Large businesses are not likely to have problems getting loans.Small businesses, however, are likely to have problems since banks perceive these loans to be a lot riskier during an economic downturn.
A government programme to guarantee loans to small businesses would help ease the small business credit constraint.
Bank liquidity remains good with outstanding loans only 87% of the bank deposit base. Banks are also financed with bonds of about one trillion baht.
perceive - feel that
something is the case, feeling a certain situation to be true
credit - all the loans in the economy
constraint - something that limits or controls what you can do (See glossary)
ease a constraint - removing limits or controls over what you can do, to make doing it easier
liquid (adjective) - having cash or assets that can be reduced to cash quickly
liquidity (noun) - same meaning as "liquid"
liquidity problem - running short of the cash (cash is needed to continue doing business, so this endangers the life of the business)
bank liquidity - when a bank runs short of cash (because of bad loan assets or because of funding problems such as depositors withdraw deposits or overseas loans cannot be renewed)
outstanding - currently exists, not finished yet
outstanding loans - loans that currently exist
credit - all the loans in the economy
constraint - something that limits or controls what you can do (See glossary)
ease a constraint - removing limits or controls over what you can do, to make doing it easier
liquid (adjective) - having cash or assets that can be reduced to cash quickly
liquidity (noun) - same meaning as "liquid"
liquidity problem - running short of the cash (cash is needed to continue doing business, so this endangers the life of the business)
bank liquidity - when a bank runs short of cash (because of bad loan assets or because of funding problems such as depositors withdraw deposits or overseas loans cannot be renewed)
outstanding - currently exists, not finished yet
outstanding loans - loans that currently exist
There is a widely held perception that banks should be cutting their interest rates in line with BOT rate cuts.
Dr. Tarisa rebutted suggestions that the central bank's interest rate cuts had only resulted in greater profit for banks.
Thai banks are not reaping excessive profits from the interest rate spread between deposits and loans as people think:
Net
interest margins for Thai banks, based on the difference
between paid
and received interest, are 3.2%, compared with 4% to 6% for Asean
countries. Margins shrank to just 1% once operating costs such as
salaries, tax, IT expenses, loan provisions and contributions to the
Deposit Insurance Agency were included...The return on assets
for local
banks is just 1.1%, the
lowest in Asean. It shows that Thai banks have
a long way to go in terms of efficiency
before they are on par
with
other regional banks...
widely held perception - many
people believe this
in line with - following, agreeing with, doing the same as
rebut Y - give reasons why Y is not true
rebutted suggestions - give reasons why suggestions is not true
reaping excessive profits - gaining too much in profits
Net Interest Margin (NIM) - the difference between a bank's paid interest and received interest (longer definition: percentage difference between the interest income produced by a bank's earning assets (loans and investments) and its major expense-interest paid to its depositors. The net difference between interest earned and interest paid is a key measure of bank profitability) (See Business Glossary)
return on assets (ROA) - profits as a percentage of the total assets, shows how well a company is using its assets to produce profits
efficiency - doing a lot with a little resources
on par with - equal to
in line with - following, agreeing with, doing the same as
rebut Y - give reasons why Y is not true
rebutted suggestions - give reasons why suggestions is not true
reaping excessive profits - gaining too much in profits
Net Interest Margin (NIM) - the difference between a bank's paid interest and received interest (longer definition: percentage difference between the interest income produced by a bank's earning assets (loans and investments) and its major expense-interest paid to its depositors. The net difference between interest earned and interest paid is a key measure of bank profitability) (See Business Glossary)
return on assets (ROA) - profits as a percentage of the total assets, shows how well a company is using its assets to produce profits
efficiency - doing a lot with a little resources
on par with - equal to
Fiscal policy will be quicker than monetary policy
Dr Tarisa said fiscal policy would have an important role in stimulating the economy, while monetary policy would require more time to be effective."There is room for fiscal policy to manoeuvre, given that the public debt stands at just 37% of gross domestic product," she said.
The government expects to run a budget deficit of 350 billion baht this year to stimulate growth. The central bank currently forecasts 2009 growth at between zero and 2%.
fiscal policy -
increases in government spending or tax cuts
manoeuvre (verb, noun) - skillfully change or move things out of a bad situation into a good situation
room to manoeuvre (noun phrase) - the situation allows you to change things (allows you to act) (See glossary)
room for fiscal policy to manoeuvre - government debt is still low enough that more can be added, so the government can increase spending and run a deficit, that will have to be financed with more debt
public debt - government debt, money that the government owes in the future on bonds issued to finance spending
stimulate growth - cause economic activity to increase and income and wealth in the economy to grow
manoeuvre (verb, noun) - skillfully change or move things out of a bad situation into a good situation
room to manoeuvre (noun phrase) - the situation allows you to change things (allows you to act) (See glossary)
room for fiscal policy to manoeuvre - government debt is still low enough that more can be added, so the government can increase spending and run a deficit, that will have to be financed with more debt
public debt - government debt, money that the government owes in the future on bonds issued to finance spending
stimulate growth - cause economic activity to increase and income and wealth in the economy to grow
Exchange rate policy
On exchange rate policy, Dr Tarisa said the baht had been stable relative to regional currencies. A policy to push the baht weaker would only hurt confidence."A weak currency shows that a particular country has a confidence problem," she said.
"The baht has been supportive for international trade. It has weakened against our trade partners and trade competitors. Comparing the baht against the dollar does not represent the whole picture."
stable relative to regional
currencies - not moving up and down compared to the
currencies of nearby countries, relatively fixed
push the baht weaker - the baht becomes less valuable compared to other countries, making Thailand's exports cheaper
a weak currency, an undervalued currency - a currency that is less valuable than it should be (policy kept China's currency weak so that Chinese exports remained cheap and competitive)
country has a confidence problem - sometimes a currency is weak and loses value because investors lose confidence in the economic future of the country and withdraw their investment funds
baht has been supportive for international trade - a less valuable baht means that Thai exports are cheaper and more competitive
weakened against our trade partners and trade competitors - the baht has become less valuable making Thailand's exports cheaper for trade partners, cheaper than trade competitors
push the baht weaker - the baht becomes less valuable compared to other countries, making Thailand's exports cheaper
a weak currency, an undervalued currency - a currency that is less valuable than it should be (policy kept China's currency weak so that Chinese exports remained cheap and competitive)
country has a confidence problem - sometimes a currency is weak and loses value because investors lose confidence in the economic future of the country and withdraw their investment funds
baht has been supportive for international trade - a less valuable baht means that Thai exports are cheaper and more competitive
weakened against our trade partners and trade competitors - the baht has become less valuable making Thailand's exports cheaper for trade partners, cheaper than trade competitors
(Source: Bangkok Post, business, 29-01-09, Monetary policy will ease to reduce costs, PARISTA YUTHAMANOP, link)
