BoT foresees trade spat hurting GDP at year-end

Veerathai: Various external risks at play

The trade dispute between the world’s biggest economies is expected to take a toll on the Thai economy from the end of this year at the earliest, says the Bank of Thailand’s chief.

The trade spat is escalating and posing greater risk to economies, currencies and capital markets across the world, said governor Veerathai Santiprabhob.

External risk could also accelerate currency volatility and hurt confidence as well as private investment, he said.

Although the retaliatory trade tiff between the US and China has already affected Thailand, the impact has been limited to the solar cell and washing machine industry, he said, noting that the central bank will continue to monitor the situation.

“The negative impact has not been immediate, so we need to monitor it closely,” he said. “Despite the [expected] broad-based economic recovery and positive momentum in the second half of the year, external risks could be higher.”

Views on the trade rift’s impact on the Thai economy remain divided.

The Fiscal Policy Office recently estimated that the trade rift would have a net negative effect on economic growth of a mere 0.03 percentage points, while Bank of Ayudhya has estimated that the net effect from retaliatory tariffs between the world’s two biggest economies would result in a modest gain in GDP.

Regarding Project Inthanon, the Bank of Thailand’s wholesale Central Bank Digital Currency (CBDC), Mr Veerathai said the central bank will lay down infrastructure for the country’s payment system in preparation for the digital age.

Distributed ledger technology will enhance efficiency and cut down operating costs in the Thai financial market in the long run, he said.

“The central bank’s digital currency will be issued in baht,” Mr Veerathai said. “As it will not be a general digital asset, it won’t lead to price volatility and speculation.”

The first phase of CBDC, which will be used for interbank fund transfers, is expected to be completely developed by the first quarter of next year. The central bank and eight commercial banks under Project Inthanon Phase 1 will design, develop and test a proof-of-concept prototype for domestic wholesale funds transfers using wholesale CBDC.

In another development, Mr Veerathai said the Thailand-Malaysia Qualified Asian Bank (QBA) has progressed to the protocol process and the bilateral agreement is subject to deliberation by both countries’ lawmakers.

The QBA is another policy that regional central banks are collaborating on. The Bank of Thailand made its first Heads of Agreement on a reciprocal bilateral arrangement for the QBA with Bank Negara Malaysia in March 2016.

The bilateral deal is part of an umbrella for the 10-member bloc called the Asean Banking Integration Framework, which provides greater access for indigenous Asean banks to each other’s banking sectors.

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