bài giảng tiền tệ ngân hàng

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I. General theory
1, The definition of central bank
Central bank (sometimes referred as Reserve bank, or the authorities of the currency)
is the agency that in charge of managing the monetary system of the country / group of
countries / territories and is responsible for implementing monetary policy. The purpose
of the central bank is to stabilize the value of the currency and money supply, control the
interest rate and assist commercial banks from the risk of collapse. Most central banks
owned by the state, but there is certain degree of independence of the government.
Bank of Thailand monetary process:
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2 Usable interest instruments of central bank
2.1 Base rate
The base rate is announced by the central bank, as the basis for the fixed interest
credit business. Almost State Bank loans to credit institutions are allocated by
Government for the purpose and money quantity. In those situations (case when discount
rate, refinancing interest rate cannot be effective because it is the only loan with specified
and fixed interest rate), it was devised a type of interest rate announced by the State Bank
called the base rate to conduct credit institutions to use as the basis for the formation of
business rates. In Thailand, the base rate (also called Benchmark rate) plays the role as
the policy rate.
The base rate is not the real interest rate for not to be formed on the relationship
between supplies and demands
2.2 Discount rate
The rate used to calculate payment when discounting valuable papers. The discount
rate determined by the central bank and published in accordance with the objectives of
monetary policy in each period.
The holders pledge valuable papers to the banks to get a loan with a value less than
the value on the pledged papers (the difference is the discount rate) and the banks will

record the entire amount when the paper matures. In case of papers that undue payments
that banks are in need of business, they can bring this valuable paper to the central bank
to discount according to the rediscount rate the central bank announced earlier to collect
funding for the operation of business.
Discount rate acts as "floor" rate on the market, so it is lower than market rate. The
reason is simple: the banks borrowed from the central bank to provide credit to the
customer, if the customer deposit rate were lower than the rate from the central bank, the
banks would not be profitable. The central bank‘s rediscounting papers has same impact
to the money supply change in the market. However, raising the discount rate will limit
the ability to access the capital of credit institutions
2.3 Refinance rate
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The refinancing rate is the interest rate that the central bank applies when
refinancing for commercial banks in such cases:
- Loans under the credit profile.
- Discounting, rediscounting commercial papers and other short-term valuable
papers
- Loans secured by pledging of commercial papers and other short-term valuable
papers
Basically, the discount rate and refinance rate are almost similar, except the object.
Refinance rate can be applied to many kinds of valuable papers, hence it is often higher
than the discount rate due to the valuable papers pledged have a higher level of risk.
The mechanism of action of refinancing interest rate is the same as the rediscount
rate. When the central bank aims to reduce inflation and to keep stable exchange rates,
refinance rate will rise.
2.4 Open market operation interest rate
OMO rate is the interest rate (or discount rate) for valuable papers applied in the
OMO operations of the central bank.
Central bank sells valuable papers to reduce the banks s’ available amount of capital

and therefore limit supply of money in the market. In contrast, when purchasing valuable
papers from the market, central bank “pumped" the same amount of money to the money
market.
Open market operations are operations that central bank adjust the money supply in
circulation due to changes in the available capital, OMO rate then indirectly impact on
market rate. If banks discount valuable papers in the central bank with OMO rate, it is to
lend at higher rates than discounted rate in order to be profitable. If the discount rate is
too high, it will limit the attractiveness and the ability of banks in trading valuable papers.

2.5 Interbank offered rate
The rate of interest charged on short-term loans made between banks. Banks borrow
and lend money in the interbank market in order to manage liquidity and meet the
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requirements placed on them. The interest rate charged depends on the availability of
money in the market, on prevailing rates and on the specific terms of the contract, such as
term length.
In Thailand, it is referred as the rate for short-term interest rates in the Bangkok
interbank market. BIBOR is calculated from the average of rates at which commercial
banks are willing to lend to other banks.
The similar interest rate instruments of foreign central banks are US Fed Funds Rate,
UK LIBOR (London Interbank Offered Rate), Japanese TIBOR (Tokyo Interbank
Offered Rate),
The current Bangkok interbank offered rate (Bibor):


3 Types of interest rate policy
3.1 Interest rate ceiling
Interest rate ceiling is the maximum fixed interest rate for loans. This policy aims to
encourage the capital raising and increase government control capability. The government

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launched a fixed interest rate applying to the entire banking system as well as the
economy.
3.2 Fixed rate policy
Fixed rate policy is used when central bank controlled commercial banks in both
capital raising interest rate and lending rate. Under this policy, there is no competition
between banks on interest rates because of not reflecting the roles of supply and demand
in the market, thus it does not promote economic development.
3.3 Floating interest rate
Floating interest rate is determined by the supply and demand in the market.
Thailand currently applies this kind of interest rate policy, under the intervention of BOT.
4 Interest rate affecting factors
4.1 Expected inflation
When expected inflation tends to increase in a certain time, interest rate will be
likely to rise.
There is a calculation: “Nominal interest rate = real interest rate + inflation rate”
Therefore, to maintain the real interest rate when inflation increases, the nominal interest
rate must rise up respectively.
Also, due to the rate of inflation increases, people prefer holding goods, gold and
foreign currency to lending. This causes money supply curve to shift to the left as interest
rate rises. Conversely, if inflation tends to reduce, the interest rate tends to decrease.
4.2 Demand and supply capacities of lending
Any change in supply or demand or both without the same proportion will make the
supply and demand curve shift, so the interest rate changes. Therefore, central bank can
impact on supply and demand in the capital market to change the interest rate in the
economy to suit the strategic goals in each period.
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4.3 Budget deficit

 As the budget deficit increases, the government will desire to borrow from the
public; this increasing the demand for lending, demand for loan fund curve shifts
to the right, and interest rate will then rise.
 Assets and incomes: As the economy grows, the assets and incomes of individuals
increase, they need to save by making loans. The supply of lending increases, the
supply curve shifts to the right as interest rate reduces. In contrary situation, the
interest rate will increase.
 Expected return rate of debt instruments: In the case that market interest rate tend
to rise in the future, the market value of long-term debt instruments decreased, the
rate of expected return accordingly reduced. The debt instruments become less
attractive, thus makes supply funds for loans fall, the supply curve shifts to the left
and interest rate rise.
 Risk calculation of debt instruments: When the risk of the debt instruments
increase, the demand for debt instruments decreased, thus makes lending funds
supply curve to shift the leftward and interest rate rises.
 The liquidity of investment instruments: If the liquidity of debt instruments is
higher than other investment tools, there will be increases in debt instruments
demand, the supply funds curve shifts right, lowering interest rates.
5 Operating mechanism
Interest rate policy is an instrument of monetary policy. Depending on the different
targets of monetary policy, central banks will apply the appropriate operating rates to
stabilize the currency market, creating favorable conditions for banking operations and
the efficient allocation of capitals in the economy
The most important goal of the central banks of every country in the world as well
as Thailand's central bank is to stabilize the value of the national currency - through the
control of inflation. In particular, interest rate is used as one of the monetary policy
instruments to achieve this mandate
In theoretical, nominal interest rate and inflation have the same fluctuation. When
inflation rises, the nominal interest rate increases to ensure that real interest rate is
accepted by stakeholders in the economy. The prospect of real interest rate may affect to

the expectations, expenditure and investments. After determining the inflation
expectations, if consumers believe that saving rate will increase slowly or stay
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unchanged, i.e. the real interest rate is negative, they tend to withdraw their savings,
deposits and invest them in real estate or securities to protect purchasing power. This will
create the real estate bubbles in market then make the CPI increase, therefore, the real
interest rate has a direct influence on consumers ‘s decisions, as well as an effect to
inflation expectations. Therefore, central bank often controls inflation expectations
through the trend of real interest rate. Typically, central bank increases the interest rates
when inflation reaches the nominal interest rate. This transmits a signal that central bank
will tend to maintain positive real interest rate policy. Signs will also weaken the market's
expectations of real negative interest rate and asset-rising prices.
The relationship between interest rates and inflation are based on the impact of
interest rates on aggregate demand, and it is the key by using interest rate to manage the
economy. In the components of aggregate demand, two factors that directly impact on
interest rate changes are consumption and investment. In particular, consumption will fall
when interest rates rise due to the price of borrowing becomes more expensive. For
investors, borrowing costs rise as the profitability of investments become lower.
Therefore, the increase of interest rates would reduce the level of investment. However,
reduction of investment also depends on the elasticity of demand for investment than
interest rate. Conversely, when interest rate falls, the behaviors of consumers and
investors change in the opposite direction. That change is reflected in the shift of the
aggregate demand curve.

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II, BOT interest rate operations history
1, 2011
a/ General outlook of Thai economy by 2011

In 2010, the GDP reached 7.8%, the highest since 1995. GDP increased by 1.2% in Q4
2010, as opposed to a decline of 0.3% in Q3. The Development Committee maintained
the growth forecast in 2011 would be 3.5-4.5%.
Thailand's economy grew in the fourth quarter thanks to exports and consumer
spending. National Council of Economic and Social Development said GDP rose 1.2%
in the last quarter of 2010, as opposed to a decline of 0.3% in Q3, due to political crisis
and flooding.
Since the beginning of 2010, the Thai baht was appreciated by 11.4% compare to US
dollar. Thailand's economy depends heavily on exports: 65% of Thailand's GDP comes
from exports. The economic growth in this country kept booming despite the political
instability and domestic currency rise.
Bank of Thailand was ready to raise interest rates after declaring threat of inflation in
the country. Prime Minister Abhisit Vejjajiva claimed to raise the minimum income and
to encourage consumption.
The Development Committee, also known as the state planning agency, maintains
growth forecast in 2011 is 3.5- 4.5%.
b/ Interest rate fluctuation in 2011
With inflation rising from late 2010 to 2011, BOT applied the tightening monetary
policy by raising interest rate to curb inflation. Specifically, in January 13
th
2011,
Thailand increased the base rate to 2.25% to curb inflation which caused base salary and
oil price increased. Due to the interest rate was low; it could lead to interference to
market and therefore negatively affected the expansion of the economy.
Table: Interest rate of Bank of Thailand in 2011
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12
nd
Jan, 2011 Increase 0.25%

2.25%
9
th
Mar, 2011 Increase 0.25%
2.5%
20
th
Apr, 2011 Increase 0.25%
2.75%
1
st
Jun, 2011 Increase 0.25%
3%
13
rd
Jul, 2011 Increase 0.25%
3.25%
24
th
Aug, 2011 Increase 0.25%
3.5%
30
th
Nov, 2011 Decrease 0.25% 3.25%
Inflation accelerated to 3% in the last month of 2010 while core inflation rose to its
highest level in 21 months, up to 1.4%. This rate was within the target BOT set to keep
core inflation rate below 3%. The risks to global inflation were expected to remain going
forward. The Thai economy grew well in the first quarter supported by agricultural
production and exports.
According to a report published the same day, the consumer price index (CPI) in

May rose 4.9% in Thailand compared to the same period last year, the fastest growth
since 9/2008. Core CPI, determinants of monetary policy, speeded up to 2.48%. BOT said
they would raise interest rate while core inflation forecast may exceed the ceiling of 3%
in the second half of this year.
In respectively March 9
th
and April 20
th
, BOT increased the benchmark one-day bond
repurchase rate by a quarter of a percentage point, from 2.25% to 2.5% and from 2.5% to
2.75% to damp inflation stoked by surging commodity prices. The move was predicted
by many economists surveyed by Bloomberg News.
Inflationary pressure increased more than expected following hikes in the prices of
foods. As a result, there is a risk that core inflation may breach the upper end of the target
that band in the future periods. On June
1st
, in order to prevent inflation momentum after
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May CPI increased to 4.9%, the highest since August 2008, BOT raised the policy
interest rate by 0.25 percentage points, from 2.75% to 3.00%
BOT put up interest rate by a further 25 basis points on July 13, to 3.25%, and
indicated that the trend was still upwards. BOT had been among the most aggressive of
the Asian central banks in raising rates – starting last July it had added a quarter of a
percent at seven of its eight most recent meetings – but inflation was still creeping up.
Headline inflation was at 4.06 per cent in June, slightly down from May’s 4.19 per cent,
but the trend was upward: it was 3.14 per cent in March and 4.04 per cent in April.
On August 24, 2011, BOT has decided to raise interest rates 0.25% from 3.25% to
3.5%, the highest level in three years from 2009. This was the 6th time this year BOT
increased interest in the circumstance that inflation became a major concern for the

country, while world economic growth was slowing down.
Interest rate in Thailand was up in Q3 2011 due to inflation concerns, BOT assessed
the slowdown in advanced countries to weigh on the prospects of Thai exports. The MPC
judged that the Thai economy continued to expand thanks to intra-regional trade within
Asia and strong domestic demand, especially with pushes from fiscal stimulus, although
export growth began to demonstrate some moderation. Meanwhile, domestic floods
intensified and brought about a partial halt in some economic activities. Inflation
pressures continued to sustain driven by growth in domestic demand, while inflation
expectations became more stable.
However, in Q4 2011, the euro area was more likely to fall into recession, while
economic recovery in the U.S. remained somewhat fragile. On the domestic front, the
impact of the floods on manufacturing production, exports, and private sector confidence
turned out to be more severe than expected. While inflationary pressure persisted due to
the impact of stimulus measures and the anticipated pick-up in private demand, upside
risks to inflation were assessed to be limited. Thailand Q4 GDP fell sharply to -11.1%
compared to the third quarter. Thailand central bank therefore decided to cut interest rate
from 3.5% to 3.25% in order to stimulate investment recovery and economic growth.
With the policy of interest rate, inflation calculated at the end of 2011 was around 3.81%,
thus made BOT fail the goal to keep inflation below 3.

C/ Effect and evaluation
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In the end of 2011, short-term money market interest rate for both collateralized and
uncollateralized lending in Thai baht increased in tandem with the policy interest rate.
The 1-day repurchase rate and the overnight interbank rate (quarterly average) rose to
3.33 and 3.23 percent per annum, respectively. The overnight swap rate, which reflects
the cost of borrowing in Thai baht using the U.S. dollar as collateral, also increased in
line with the policy interest rate to 3.06 percent per annum.
Also, the reference lending rates (MLR) and the 12-month time deposit rate of the

four largest commercial banks edged up to 7.25 and 2.87 percent, respectively, in line
with the policy rate increases. The 12-month time deposit increased more than the 3- and
6-month time deposit rates in order to attract long-term funds to support the ongoing
credit expansion and to manage the funding costs during the interest rate tightening cycle.
Headline inflation in 2011 Q4 registered at 3.97 percent, decelerating from the
previous quarter thanks chiefly to the decline in energy prices in line with global oil
prices. Higher risks pertaining to the global economic outlook resulted in volatile
movements in the Thai stock market in 2011 Q4. This high volatility is likely to continue
in 2012 Q1 as reflected by 3-month implied volatility of the SET index. Nevertheless, the
market started to pick up with the SET index closing at 1,025.32 at year-end, compared to
the year’s lowest level at 855.45 on 4 October 2011. This was mainly due to the return of
foreign investments to the Thai and other stock markets in the region after a series of
selloffs in the previous quarter. A net foreign purchase of Thai stocks in 2011 Q4
registered at 30.2 billion baht, while domestic purchases also increased markedly due to
acceleration in investments in long-term equity funds (LTF) and retirement mutual funds
(RMF) towards the year end.
The Thai currency averaged at 31.0 baht per U.S. dollar in December, depreciating by
2.8% from previous quarter.
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The monetary base in July and August 2011 expanded by 13.1 and 16.6 percent,
respectively, over the same period last year. This was driven mainly by public demand for
cash as economic activity continued to grow robustly.
2, 2012
a/ General outlook of Thai economy by 2012
The prolonged floods in 2011 made a strong impact on Thailand economy, causing
gross domestic product grew by 1.1 %, which was lower than the forecast of 1.7%
estimated in the worst case. Thai economic growth plunged in the final quarter of 2011 as
water inundated vital farmland and industrial estates on the central plains. After
devastating floods, Thailand’s bruised economy is depending on the impact from

government flood support funds, pent-up domestic demand and renewed corporate
investment to spur growth.
Thailand's inflation rate for 2011 rose from last year's 3.5 percent to 3.81 percent. CPI
in December 2011 stood at 112.77, 3.53 percent higher in year on year but down 0.48
percent compare to the previous month. (PPI) inflation continued to slow down from the
previous quarter to stand at 4.1 percent. In particular, prices of mining products
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decelerated from the previous quarter of 10.1 percent to 8.5 percent in line with global
commodity prices while manufactured product prices, declined from the previous quarter
of 9.1 percent to 6.5 percent, resulting from the decline in prices of rubber and plastic
products. Nevertheless, prices of agricultural products reduced by less than the rate
observed in the previous quarter as prices of vegetables and fruits increased in response
to the floods
It was said that inflation in December declined because flood water had receded thus
reducing prices of consumer goods, particularly fresh food such as vegetables and eggs.
The economic targets of Thailand in 2012 were to develop steadily thanks to the
government's policy decisions, such as export promotion, building infrastructure
development and demand aggregate stimulus.
b/ Interest rate fluctuations in 2012
Compared to December 2011, interest rate was reduced by 0.25%, from 3.25% to 3% .
This was the second cut within three months in order to stimulate the economy and help
lower baht price, because a strong local currency ultimately leading to tighter monetary
policy (ie interest rates rise). In addition, the continuous tightening of monetary policy
when the domestic currency was too strong could make the problem even worse because
it attracted a lot of speculative funds, whose are looking for investments with higher
interest rate.
2012 Thailand interest rate
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This was why Monetary Policy Committee of Thailand said that the current interest
rate was appropriate in order to support the economic recovery, while keeping inflation
within the target. The baht rose slightly against the dollar after the decision, from 30.790
baht / USD to 30.695 baht / USD.
Social Development Commission and national economic growth in Thailand said the
total gross domestic product (GDP) reached 0.4%. WB predicted that in Q1/2012,
Thailand's GDP rose 0.3% which was relatively good compared to the decrease of 8.9%
in the previous quarter. According to IMF, operating speed of Thailand economy slowed
and capital inflows reduced, thus reduced inflationary pressures and weakened credit
growth. Inflation was expected to decrease from 5% in 2011 to less than 4% in 2012. The
organization advised that Thailand should focus on promoting social welfare and
investing in infrastructure. Besides, they should extend crediting to small and medium
enterprises to reduce dependence on exports.
According to the BoT, the investment of public sector and private sector increased by
20% and 11.5% respectively, compared with an increase of 8.3% and 7.4% in the last
year. This is reasonable because reducing interest rate would help enterprises reduce
costs, improve business efficiency and competitiveness. Low interest rate is an
encouragement for businesses to expand investment and develop activities, thereby
stimulate the growth of the entire economy. However, the value of exported goods just
increased from 7.8 to 8% in Thailand, compared with an increase of over 16% in 2011,
due to the world economic slowdown and production capacity of the manufacturing
sector hit by flood impact. In a report published on 17/3, International Monetary Fund
(IMF) had identified some exporting difficulties Thailand encountered, but domestic
demand offset the decline outside.
While other countries as Indonesia, Malaysia cut interest rate or increased public
spending to boost consumption for economic recovery, the Thai government continued to
maintain interest rate at 3%. The interest rate kept stable in Q2 and Q3 2012 for the
purpose is to stabilize the market, to avoid causing a major impact on the economy. Baht
was also maintained at a stable level with no big change.
BOT said that domestic consumption and investment are core factors of the Thai

economy in situation of weak external demand. The major concern was ending of an
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economic stimulus policy the year after might slow the rate of domestic spending, while
the economic crisis in Europe continued to adversely affect exports.
The interest rate did not change too much in 2011 Q3 for the purpose was to stabilize
the market and avoid causing major impacts on the economy. Many experts concerned
that global economic downturn would result a great impact on the exports of Thailand as
well as prevent the economic growth of the country. Thailand's economy had a slight
reduction in growth rate. Calculated from July to September, the economic growth of
Thailand had decreased by 1.1% compared to Q2
According to an announcement released on October 17
th
, BOT decided to lower the
interest rate by 0.25 percentage points to 2.75%. This interest rate made Baht price reduce
the second time from the first quarter. In its statement, BOT said there was no political
interference in the decision to lower their interest rate. In other words, Thailand’s
lowering interest rate entirely from the difficulties of this economy
The lower interest rate would help reduce borrowing costs to protect the economy
while limiting the outside influence. As reported by BOT, the country's economy grew
6.5% in 2012.
Thailand import was reported to increase by 23.3% this year, while exports grew by
13.5%. In 2012, the commercial surplus of the country was $ 7.3 billion, while the
current account deficit could reach $ 3.5 billion.
C/ Effect and evaluation
With the implementation of proactive, flexible and synchronous measures in 2012,
BOT had simultaneously achieved two important goals, such as reducing ground interest
rates, aiding manufacturing business and promoting credit growth while maintaining a
stable foreign exchange market and exchange rates.
Success in reducing the interest rate according to inflation and stabilizing the

exchange rate in 2012 was caused by operating monetary policy tightly, flexibly and
tenaciously with the pursuit of inflation control target. Inflation rate in 2012 reached
3.02%, down from 4% in 2011. The Ministry of Commerce of Thailand also predicted
that inflation was 3.3% in quarter 1/2013 and will be at 2.8- 3.4% in 2013. Lowering
interest rate also stabilized macro-economy, sustained economic growth and contributed
to solving difficulties for production and business activities; managed interest rate of
credit institutions at a reasonable rate to currency market changes.
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The timely adjustment of interest rates from BOT was highly appreciated by both
domestic and international monetary organizations. The comments were that the
adjustment of interest rates was appropriate to macroeconomic stability and was also the
general trend of many countries in the region to stem the decline of economic growth.
3, 2013
a/ General outlook of Thai economy by 2013
Although the global economy was facing many difficulties, Thailand economy had
a good recovery from the worst floods in late 2011, thanks to strong domestic demand
which compensated for weak exports. BOT identified that public spending to prevent
flooding and building infrastructure would promote investment and therefore the
economy. Thailand had regained strong recovery, but the increasing value baht was not
beneficial for importers and exporters.
On the contribution of export to GDP, it had been seemed that an increase in baht
value would negatively affect exports, but exports in Q1 2013 increased by 57 billion, up
1% compared with Q2 2012. The purchasing power of farmers and workers were likely
to rise, thereby promoting domestic consumption and sustainable economic growth.
Thailand's central bank forecasted this year the economy would grow 4.7%, lower
than the estimated 5.8% in 2012. This figure was much higher than in 2011, when
Thailand economy rose 0.1% due to the impact of prolonged flooding.
Thailand's annual inflation rate jumped to 3.63 percent in December, up almost one
percentage point from November, but core inflation is comfortably within the central

bank's target range, putting it under no pressure to raise interest rate. The Bank also
predicted that Thailand's exports would increase 9% this year, after rising by 4.4% last
year.
b/ Interest rate fluctuations in 2013
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2013 Thailand interest rate
In early 2013, Thailand government asked BOT to consider cutting the base rate -
currently at 2.75% - to curb the rise of the baht which was not conducive for exporters.
However, BOT on 3/4 decided to keep interest rate at 2.75%.
BOT kept the period of unchanged rate, but a new recession of the global economy
was likely to impact negatively on the economy which relied heavily on exports of
Thailand. Therefore, BOT was possible to cut interest rate. A member of MPC said that
the ministerial regulation to help control inflows and outflows had been published in the
Royal Gazette, and gave the central bank more flexibility to manage flows; therefore the
monetary authority would be able to set conditions or collect fees on funds flowing in or
out of the country.
BOT predicted that the country's economy would grow "modestly" in quarter 2/2013,
because of shrinking exports in June for the second time, as reduction in global demand.
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In quarter 1/2013, Thailand economy grew by 5.3% compared to the same period the year
before.
On May 29, BOT decided to lower the base rate for the first time this year as economic
growth slowed. Accordingly, BOT members agreed to lower interest rate from 2.75% to
2.5%, marking the first time lowered interest rate since January 10/2012. The purpose of
this reduction was to boost growth and lower baht price that was too high.
Base rate reduction helped bath price reduce by 5% compared with the general level
of the first quarter. However, this did not improve the situation of Thailand export, when

export value in Q2 was only $ 54 billion, down 5% compared to the first quarter due to
reduced global demand. Because of this, Q2 GDP growth fell to 2.9% compared to the
same period in 2012.
In September 2013, Thai Finance Ministry lowered its growth outlook from 4-4.5%
forecast given in May 6/2013 to 3.7%, due to reduced exports and weak domestic
demand. Policy Department of the Ministry of Finance said that the monetary policy
committee (MPC) of the BOT expected policy rate keeping unchanged until 2014 to
support economic growth but there would have exceptions if Thai inflation be high.
At the end of 2013 Q3, the Thai baht stood at 31.29 baht per US dollar, depreciating by
0.85% from the end of the previous quarter
On November 27, 2013, Bank of Thailand cut the base rate to 2.25%, in order to
boost the economy in circumstance that this country had to face with a prolonged
political crisis. With negative impact of this situation, every effort of BOT by cutting
interest rate was not able to perform its objectives. Especially in Q4/2013, growth rate
was only 0.6%, down from 2.7% in the third quarter. Within 2 ending months of 2013,
the Thai baht was devalued by 4.9%, the lowest price in 3 years from 2011, while the
main index of Thailand stock market fell by 7.9%.
Thailand entered a technical recession earlier 2013 but was unable to cut rates because
of the need to attract capital as U.S. yields rose. These pressures had eased recently as the
U.S. Federal Reserve has delayed ending its extraordinary monetary policies, pushing
yields somewhat lower.
Thailand also had been running high levels of household debt, a result of years of low
global interest rates. The government in 2012 ran a tax incentive program for first-time
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car buyers. The program expired a year ago, leading to defaults and further impairing
growth.
The central bank said household credit growth was moderating, meaning a rate cut
wouldn't risk a further expansion of lending.
This interest rate continued remained until the end of 2013

C/ Effect and evaluation
It was a year signaling the downhill of Thailand economy after a strong growth in
2012 with GDP achieved was only 2.9% in whole 2013.
Looking at Thailand interest rate: the downward trend showed a heavy recession with
a reduction of interest rate from 2,75% to 2,25%
BOT lowered interest rate 2 times in Q2 and Q4, 2013 with the target of encouraging
investment and consumption to increase aggregate demand thus increased output, prices
while reduced unemployment and reduced baht value to stimulate export, tourism which
contribute to large shares of state GDP. Within 2 months, Thai baht was devalued by
4.9%, the lowest level in 3 years, while the main index of the Thai stock market fell by
7.9%. However, with the global economic crisis and national political instability, interest
rate instruments had not been able to take effective.
The Q1 2014 of Thailand economy was predicted not to be good if the country did not
have effective measures to overcome the current political crisis. The economists
forecasted, if Thailand proceeds smoothly elections with a government to be formed, they
could partially restore the confidence of investors and then stimulate growth speed. If this
scenario could occur, the first half GDP growth in 2014 was predicted to reach 3% while
it could reach only 2.5% if the political crisis remains unsolved. In the worst case, the
economic growth rate in Thailand would rise only 0.5% in 2014 without any government.
4, 2014
a/ General outlook of Thai economy by 2014
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Entering 2014, political tensions in Thailand had a strong impact to the country's
economic activity. It was estimated that Thai economy lost $15 billion due to the
demonstration. According to Bloomberg, from the end of October 2013, investors had
withdrawn more than $4 billion from the stock and bond market in Thailand. The default
risk of Thailand became highest since May 6/2012, when the demonstration caused the
investment fund to get assets sold.

According to the Office of Financial Policy of Thailand, GDP could only grow at 3.1%
in 2014, 0.9% lower than the previous forecast
On 3/1, the baht fell to its lowest value since February 2010, with the exchange rate of
32.98 baht against 1 USD. Thai baht plunged down as investors anticipated that the
central bank would cut interest rate. The political crisis impacted growth SET index of
the Thai stock market fell 5.23% to 1230.77 points, the lowest level in more than a year.
In 2013, Thailand inflation rose 2.18%, which was considered as declining rate in line
with economic slowdown, declining global fuel prices and household spending
The unemployment rate in Thailand due to the impact of the economic crisis and
political crisis has increased over the years, 2012 is 226,000 people (0.6%), 2013 is
355,200 people (0.9%), in 2014 was 378 800 people (1%)
b/ Interest rate fluctuations in 2014
For the first quarter, money market interest rates adjusted downwards in tandem
with the policy rate while movement of government bond yields was volatile due to
demand for bond investment from both domestic and foreign investors that resulted from
the domestic political situation and expectation of QE tapering.
During January–March, 2014, short-term money market rates remained close to the
policy rate. In this regard, the overnight interbank lending rate edged down to 1.90
percent per annum on March 13, 2014 while the interest rate was cut down from 2.25% to
2% - the ever lowest rate. This was the second time central bank reduced the cost of
borrowing for the purpose of calming the effects of political instability. "The risks to
economic growth have increased in the context of prolonged political instability," Bank
of Thailand announced after the 4-3 vote in favor of the pay cut. Thailand's growth rate
slowed in the fourth quarter of 2013, only 0.6% compared with 2.7% the previous
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BANKING ACADEMY MONETARY BANKING
quarter.
2014 Thailand interest rate
In a statement after the Monetary Policy Committee voted to cut the interest rates, the
Bank of Thailand emphasized that there are more negative impact on growth because of

prolonged political crisis. According to the central bank, the recovery of investment and
private consumption will continue to suffer.
In the circumstance that Thailand economy experienced negative growth and
unemployment rising, Bank of Thailand has chosen to lower the base rate to regulate the
macro economy in order to encourage investment and consumption, thereby increasing
aggregate demand which could lead to the increase of output and prices while
unemployment keeps declining and baht is about to devalue against foreign currencies.
When baht depreciated against foreign currencies could make exports cheaper in
Thailand, thereby increasing competitive advantage, positive impact on exports of the
country. Actual value of exports in the first two quarters of 2014 decreased to 55 billion
compared to US $57 billion last two quarters of 2014, due to the short-term baht
devaluation reduced the value of exports. Inflation is estimated first 8 months of 2014 at
1.54% higher than the 1% of the 2013
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BANKING ACADEMY MONETARY BANKING
On August 7
th
2014, Bank of Thailand (BOT) has decided to keep interest rates at
2%, with many factors reflecting the economy’s recovery after many months of negative
impacts by political instability.
Monetary Policy Committee said that the political issues increased downside risks to
the economy of Thailand. Monetary policy relating to interest rate of Q2 was 2%,
Thailand's economy has shown signs of improvement in the second quarter of 2014.
Export showed slight recovery, while public spending fell inconsiderably. In the
remaining half of the year, domestic demand was more sustainable while public
investment became stronger, thus caused further impetus to growth recovery
Thailand’s inflation is estimated for the whole 2014 at 1.89% lower than the 5 year period
from 2009
C/ Effect and evaluation
Overall, current monetary conditions continued to be accommodative enough to

facilitate economic recovery as reflected by the negative real policy rate. In addition,
from the business sentiment survey, the policy interest rate was not a primary restriction
to business operations as opposed to the top three factors, namely domestic demand,
production cost and difficulty in price adjustment.
The response of the commercial banks as bank of Thailand lowered the base rate is not
optimistic. Mr. Vorapak Thanyawong - KTB Bank chairman considers cutting credit
growth target in 2014. The Bank has largest total assets in Thailand was about to cut the
credit growth target from 7-10% to 4.5% this year after lowering the predicted GDP
growth rate from 4-5% down to 3.3%. This bank said that cutting interest rates would
reduce the financial burden of borrowers and improve the ability to repay, while banks
can still keep the credit quality. However, this could not be significant because this was
only a small interest rate cut.
Deposit rates of the four largest commercial banks at the end of November 2014
stabilized from the end of 2014 Q3. At the end of November, interest rates on the 12-
month deposits of the four largest commercial banks recorded at 1.73 percent per
annum. Nonetheless, many commercial banks and SFIs still competed for deposits by
increasing the numbers of special deposit products and their interest rates in order to
maintain market share. In the periods ahead, it was expected that market competition
for deposits would continue albeit at a lesser extent due to the slower-than-expected
economic recovery.
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BANKING ACADEMY MONETARY BANKING
The average Minimum Lending Rate (MLR)of the four largest commercial banks
stood at 6.75 percent per annum at the end of November 2014,unchanged from the end
of 2014 Q3.
5, 2015
a/ General outlook of Thai’s economy
According to the Economic Development Committee - National Society of Thailand
(NESDB) announced, the 2014 growth rate of Thailand was slowest in three years from
2012, in the circumstance of politics instability while investment and exports keep

decline simultaneously. Thailand's GDP in 2014 increased by only 0.7%, while the figure
was anticipated to be 1%, and much lower than the rate of 2.9% in 2013, and also be the
lowest since 2011.
Despite the consequences of the recent natural disasters, political instability and
prolonged financial crisis from 2002, the Thai market remains a sustainable growth trend
in the long term. This will be the driving force for economic recovery in Thailand,
according to some investors. Thai stock market still stably operates with the SET index -
one of the highest increased index in Asia in early 2015. Since the beginning of 2015,
SET has increased 2.65% after rising 15.3% in 2014.
Also, Baht is still considered one of the Asian currencies with fastest recovery
compare to US dollar.
b/ Interest rate fluctuation in 2015 Q1
In the fourth quarter of 2014 and January 2015, the Thai economy continued to
recover slowly, as the economic momentum from private consumption and investment
was softer than expected owing in part to weaker private sector’s confidence. In the
periods ahead, the economy is projected to recover at a slower pace than formerly
assessed.
Thailand's economic growth has slowed recently, to just 0.6% in the last quarter of
2013 from 2.7% in the previous quarter
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BANKING ACADEMY MONETARY BANKING
2015 Q1 Thailand interest rate
On 11/3, bank of Thailand cut interest rates to 1.75%, from 2% previously, in order to
stimulate economic growth. This is the first time since May 3/2014, bank of Thailand cut
interest rates, although there were many expectation that Thailand would maintain
interest rates at 2%, in the circumstance that the economy of Thailand recovered slowly
than expected.
Bank of Thailand said the rate cut caused by the prospects for economic growth was
weaker than previously forecast. The move comes amid continuing political turmoil in
the country, as the bank tries to encourage spending after a slowdown in economic

growth. "Downside risks to growth have risen" in the wake of the prolonged political
situation, the central bank said in a statement.
Also, Thailand deputy Prime Minister, Pridiyathorn Devakula, said Bank of Thailand
believed that the official rate cut would help unpin exports by curbing any appreciation in
the Thai baht.
Thai baht devalued to 32.86 baht per USD after bank of Thailand announced the cut in
the interest rate.
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BANKING ACADEMY MONETARY BANKING
III, Estimation of BOT monetary policy over period 2011-2015
1, The positive sides:
 The Thai government tried to control inflation while the interest rate was adjusted
flexibly. Therefore, the interest rate policy of Thailand had a positive impact on
the economy.
 Continue to implement flexible interest rate policy, manage interest rate line with
the objectives of controlling inflation and stabilizing the midpoint inflation target.
 Interest rates on the market are adjusted with macroeconomic developments and
directions of the government. For the purpose of stabilizing prices and the
economy, interest rate has been considered as the versatile tool in monetary policy.
 The low interest rate contributes to reduce difficulties for enterprises in the
economy. Credit activities have positive signs again.
2, The negative sides:
 The economic regulation when implementing monetary policy has always caused
latency. An increase or decrease in interest rate would greatly affect the operation
of the entity in the economy directly or indirectly. In fact, over the last years, when
interest rate was adjusted, it directly impacted people and businesses through
deposit rate and lending rate
 The mechanisms to manage the implementation of the interest rate of commercial
banks have not fully completed, so the commercial banks are always looking for
ways to take advantage of legal risk, which caused less liquidity and lasting bad

debts
 Due to political instability, Thailand sank deeper and deeper into crisis, which has
extended negative impacts on the broader economy, particularly on foreigners’
confidence affecting tourism, one of the key economic sectors of Thailand and
external capital pouring into Thailand
 Because Thailand central bank is a model independent with the government, it
should have the drawback of this model which does not have a flexible
cooperation between the monetary policy and fiscal policy. As a consequence, the
monetary policy could not maximize its efficiency
3, Propose some recommendations:
The central bank’s target set is managing interest rate in accordance with the market,
with market-oriented development and stability. We propose a number of measures for
government in the work of controlling the interest rate as:
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