Patterns of Financial Intermediation in Thailand: Implications for Central Bank Policy
24 Pages Posted: 24 Nov 2015
Date Written: November 2015
Abstract
Over the past decade, the domestic bond market and specialised financial institutions (SFIs) have played a greater role in financial intermediation in Thailand. The bond market’s increasing importance in financial resource allocation is due mainly to a set of policies to promote the financial markets as an alternative source of financing for the banking sector in both the public and private sectors. Other contributory factors arise from the lengthy and unprecedented post-crisis monetary easing in advanced economies, which has led to increased foreign demand for domestic bonds. In addition, accommodative domestic financial conditions have recently incentivised Thai firms to participate more in the bond market to lock in low interest rates. Within the Thai banking sector, SFIs have gained more importance in credit extension, initially as a main part of the government’s countercyclical policies during the global financial crisis (GFC), and to support the government’s spending and stimulus measures in the subsequent periods.
In Thailand, risks to external vulnerabilities remain contained. Despite high global liquidity, Thai firms’ offshore borrowing remains limited owing to the relatively lower costs of domestic funding. Following the GFC, commercial banks’ foreign liabilities have continued to grow, but remain contained relative to their balance sheets.
Across the period, the degree of monetary policy effectiveness has been affected by the increasing importance of the domestic bond market and SFIs. Looking ahead, the monetary policy priority is to support an ongoing economic recovery against the backdrop of a subdued inflation outlook and impending global financial market volatility.
Full publication: What Do New Forms of Finance Mean for EM Central Banks?
Keywords: Thailand, financial intermediation, financial stability, monetary policy transmission
JEL Classification: E44, G10, G21, F34, E52, E58
Suggested Citation: Suggested Citation