Thailand: Ultra Low Rates Pose Risks
Thailand's central bank chief warns of the risks that ultra-loose monetary policy can pose to emerging markets.
Emerging economies have become more vulnerable to exchange-rate volatility that hurt local companies, due to capital flows by global investors seeking «speculative returns» in the last decade, said Bank of Thailand Governor Veerathai Santiprabhob. He was speaking at a seminar on policy challenges for emerging market central banks.
«The movement of the exchange rate is an important channel for small, open economies and have a real impact on profit margins, competitiveness ... and survival of exporting firms,» said Veerathai, who was quoted in a «Reuters» article.
Ultra-Low Interest Rates Adds Danger
On top of that, prolonged ultra-low interest rate policies of advanced nations have made it harder for emerging economies to protect their financial system.
«At times, exchange rates could serve as an amplifier of shocks in capital flows instead of being a stabilizer of shock in capital flows,» he added.
Harder To Protect Financial System
Ultra-loose monetary policies of advanced economies risk undermine financial stability in emerging economies can cause spillover effects. This is because emerging market central banks need to follow their advanced nations’ counterparts in delaying normalization of ultra-loose monetary policies to prevent their currencies from appreciating.
«Because of this, emerging markets’ monetary policies could be distracted from the core mandate of their domestic policy objectives. A delay in the normalization (of monetary policy) from the low-for-long rate environment could exacerbate financial system stability,» he said.
