DAILY HIGHLIGHTS
- 22 February 2012
- 21 February 2012
RATE CUTS, HIKE IN PREMIUMS COULD SPARK DEPOSIT FLIGHT
The central bank’s policy rate cut and its plan to collect more premiums from banks could lead to deposit rates being cut sharply, with the likelihood that many depositors would then pull their money out of banks and seek new investment tools, according to economists.
The Bank of Thailand's Monetary Policy Committee yesterday cut the policy interest rate by 0.25 percentage point, from 3.25 per cent to 3 per cent.Banks are expected to follow suit and trim their deposit rates.
"The MPC assessed that inflationary pressure remains contained, while headwinds from the global economy continue to pose risks to
The rate cut should therefore help accelerate the return of economic activity to normal levels. The MPC voted unanimously to reduce the policy rate, he added. Sompop Manarungsan, president of the Payapiwat Institute of Technology, said banks were now likely to cut deposit rates.
Moreover, the central bank's plan to collect more premiums from commercial banks, for debt repayment of Bt1.14 trillion owed by the Financial Institutions Development Fund, would put more pressure on banks to opt for deep cuts in their deposit rates. "The banks' deposit rates [if reduced] will adversely affect depositors, who have already suffered from a negative interest-rate return of about 1.5 per cent," said Sompop.
The fact that the Deposit Protection Agency will guarantee depositors for up to only Bt1 million per bank from this coming August will also encourage savers to pull their funds out of banks, he added.
"These people would seek new investments, such as buying shares, gold or other assets, which could pose a high risk for the system in the long run," he warned.
Sompop said that while the central bank was now less concerned about inflationary pressure, the future was unpredictable and high inflation could return if fund managers were to speculate on commodities such as oil.
Pisit Serewiwattana, senior executive vice present of the Government Savings Bank, said banks were likely to cut both deposit and lending rates following the MPC's move.
Global interest rates are also on a declining trend due to subdued inflation, he said, adding that his bank would decide next week on any changes to its deposit and lending rates, he said.
Meanwhile, the BOT's rate cut came as the International Monetary Fund sharply lowered its economic forecast for global growth.
The IMF said the public-debt crisis in the euro zone weighed heavily on the global outlook. It also warned that the risk to the global financial system had increased.
The IMF said advanced economies were now projected to expand by just 1.2 per cent this year, a downward revision of 0.7 percentage points relative to the forecast last September. The global growth outlook for the year is 3.3 per cent.
The IMF said developing Asia was still projected to grow the most rapidly, at 7.5 per cent on average over this year and next.
Growth in emerging and developing economies is expected to average 5.6 per cent, a significant slowdown from the 6.6-per-cent growth registered in 2010-2011.