Macro Holiday : Macro theory to the real world
Source : Bank of Thailand by Natthaphat Supphasetthasiri, Ph.D.
Source : Siam commercial bank by Poonyawat Sreesing, Ph.D.
Bank of Thailand
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Bank of Thailand and monetary policy in practice
BOT set their goal in 3 target of macroeconomic policies and responsibilities in monetary policy to promote sustainable and full potential economic growth, without causing inflationary problem or economic and financial imbalances as follows :
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Stable and sustainable economic growth
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Standard of living of citizen
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Equitable income distribution
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Role of BOT
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Financial institution stability : to prevent a spillover on wider economy
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Monetary stability : maintain inflation, price stable and manage the exchange rate
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Financial stability : aim to minimize system risk
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Why is inflation undesirable?
Because have too high inflation will be obstacle for business and investment as follows.
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Decreasing the purchasing power of money.
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Make business in uncertain of costs.
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Hyper income distribution.
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Undermine the country’s competitiveness.
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What about deflation? Why is it undesirable?
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A decline in the price of goods and services.
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A decline un persistent in nature.
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Inflation expectations are no longer anchored.
Household and business might be decide to postpone consumption, investment and employment leading to downward deflationary spiral by lower price make firms lower production and investment, lower employment and declined on demand.
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Thailand experiencing deflation right now
So price stability is an important foundation for sustainable economic growth that ease to firm doing business and consumption make economy growth and well-being.
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Monetary policy tradeoff among 3 key objectives is critical
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Inflation
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Growth
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Financial stability
But the implementation of monetary policy can’t fully achieve the 3 objectives so they try to emphasize “impossible trinity” theory as follows.
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Independent monetary policy
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Fixed exchange rate
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Free capital flows
Monetary policy framework use a flexible inflation target as follows.
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Explicit numerical target : headline inflation 1-3% as agreed by both MPC and MOF.
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Flexibility : FIT allows monetary policy to balance between price, growth and financial stability.
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Transparency and accountability : clear commitment and communication under credibility of monetary policy
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IPF during COVID crisis
Thailand was among the first country to have cut the policy rate to its historical low at 0.5%
Monetary policy in practice
The committee vote 5 out of 7 maintain the policy rate at 2.5%. But the two MPC members vote to cut the policy rate by 0.25%
The Thai economy slows from external and structural headwinds. Meanwhile, domestic demand momentum remains in place and inflation should gradually increase towards the target range. The current level of policy interest rate remains consistent with sustaining growth while for casting macro financial stability in the longer term.
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World Economy in 2024 and onwards
From the geographic you can see the global economic risk in map. There have many conflict and war including politics and geopolitics, Economic and Finance, War and military and societal between internal and external country like Israel and Hamas, Russia and Ukraine and others.
Rising global uncertainty have triggered carious concerns as economic fears persists as follow.
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World trade uncertainty(IMF)
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Geopolitical risk(C)
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Climate policy uncertainty(G)
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3M ahead financial uncertainty(LMN)
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Government spending deficits and debt(BBD)
Global risk landscape reflects more uncertainty risk as follow from this picture from 2015 to 2024(for-casting)
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US versus China
Economic decoupling started to change global trade landscape as follow.
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US and its allies are regulation dependency on trade with China, relying more on their own group.
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China has not been able to significantly lower its reliance on US, but increasing trade with its Chinese allies.
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Thailand is considered highly vulnerable to the effects of climate change.
In the new growth framework Thailand can gain benefit from improvement in sustainable pillar and technology ecosystem, especially Green patents and investment in renewable energy
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Aim to
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New global cooperation model : coopetition
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moving fast, ensuring inclusive transition, and reaching beyond net zero
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long-term, more balanced, quality of growth
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About
This article is a part of the class
“751309 Macro Economic 2”
supervised by Asst. Prof. Napon Hongsakulvasu
Faculty of Economics, Chiang Mai University
This article was written by
Jeerapha Jeeraya 651615008