Economic stability
-Domestic economic stability
- Headline inflation: average headline inflation in the fourth quarter was at 1.9 percent which has a positive sign in the first 9 months. For 2009, average headline inflation decreased by 0.9 percent and started to increase in October. The increase in inflation rate was attributable to i) increase in rice price resulting from the farmer income guarantee scheme ii) high oil price as a result of rise in world oil price iii) higher water supply charge due to the reduction in supportive water supply level by government iv) increase in alcoholic beverage and tobacco price index owing to raise in excise tax. On the other hand, 15 years free education program subdued the expenditure on education. In the fourth quarter, average core inflation was at 0.1 percent, increased from -0.5 percent in the third quarter and throughout 2009 was at 0.3 percent1.
In the fourth quarter, food and beverage price index increased by 1.6 percent, and throughout 2009 increased by 4.4 percent. The acceleration was attributed by the increase in almost all of products except seasonings and condiments, fresh vegetables, and oil and fat, particularly the increase in price of rice (non-glutinous rice and glutinous rice). Non- food and beverages price index increased by 1.9 percent. For 2009, non-food and beverages price index declined by 4.8 percent mainly due to the decrease in vehicles, transportation and communication price index, as well as education price index.
Producer price index in the fourth quarter was at 6.7 percent, turned to be in a positive territory as a result of increase in price of agricultural, mining and manufacturing products by 18.1, 6.5 and 4.2 percent consecutively. This reflects the pressure on higher cost of production especially higher price of rubber owing to the increase in demand on automobile industry which was resulted from economic recovery and high order. For 2009, producer price index decreased by 3.8 percent.
-External stability
- Current account in the fourth quarter registered a surplus of 4,274 million US dollars which was equivalent to 142,276 million baht, higher than 2,763 and 3,713 million US dollars surplus in the second and third quarter. This was attributed by trade balance surplus of 2,673 million US dollars and net service, income and transfer surplus of 1,601 million US dollars due to an increase in net foreign tourist income together with a decrease in repatriation of investment income. For 2009, current account recorded a surplus of 20,291 million US dollars which was equivalent to 700,368 million baht.
- International reserve at the end of December 2009 stood at 138.42 billion US dollars (excluding Net Forward Position of 15.67 billion US dollars)3, which was equivalent to 5.8 times of short-term foreign debt or 9.4 months of import.
- Fiscal balance: In the first quarter of fiscal year 2010 (October - December 2009), budget balance consecutively recorded a deficit of 98,230 million baht, compared to a deficit of 126,322 million baht in the same period of fiscal year 2009. The total government revenue was 352,945 million baht, increased by 27.0 percent from the same quarter of FY 2009. The higher-than-expected collection was attributed to increases in value added tax (VAT), excise taxes on oil and automobile, and import duties. On expenditure side, the total budget disbursement was 451,175 million baht, increased by 11.6 percent from the same quarter of FY 2009. The disbursement comprised of 396,155 million baht of FY 2010 budget and 55,020 million baht of carry-over budget. In sum, the budget balance recorded a deficit of 98,230 million baht while the non-budgetary registered a deficit of 76,864 million baht. Given the issuance of 51,572 million baht government bonds and treasury bills to finance the deficits, therefore, the cash balance registered a deficit of 123,522 million baht and the treasury reserves at the end of December 2009 concluded at 170,313 million baht.
For the first quarter of fiscal year 2010, (October — December 2009), the total government disbursement was 396,155 million baht, equivalent to 23.3 percent of total annual budget of 1,700,000 million baht and also slightly higher than 20.0 percent targeted by the cabinet. In addition, the current budget has been disbursed by 24.6 percent of total current budget while the capital budget has been disbursed by 20.5 percent of total capital budget, given the target was set at 12.0 percent. Regarding the Stimulus Package 2 (SP2), the disbursement at the end of December 2009, was 35,035.8 million baht, equivalent to 15.9 percent of total approved budget (219,819 million baht). However, it should be noted that 11.2 percent of disbursement was allocated to the “Community Level Investment Sector” program.
Public Debt at the end of November 2009 stood at 3,969,822 million baht, or 45.56 percent of GDP, slightly lower than 45.93 percent of GDP as of the end of September 2009. The decrease in public debt was mainly due to decreases in direct government borrowing, debt of financial state enterprises and debt of Financial Institution Development Fund.
Financial Conditions: The expansion of monetary base and broad money slowed down. Depository Corporations’ loans increased as a result of household loan expansion, while corporate loan remained slumped. Specialized Financial Institutions’ (SFIs) loans accelerated on account of current government stimulus packages. Banks’ deposit continued to slow down in the period of low interest rate environment. Excess liquidity contracted, but overall liquidity remained ample. Commercial banks’ deposit and lending rate kept unchanged. Corporate fundraising declined. Thai baht continued to appreciate against US Dollar, while nominal effective exchange rate (NEER) depreciated. Capital and financial account recorded net inflow. SET index improved, while bond price index declined following increased in government bond yield. Commercial banks earning slightly decreased.
- Monetary base and broad money expanded at a slower pace. At the end of the forth quarter, monetary base increased by 120 billion Baht or 6.1 percent, decelerated from 8.9 percent in the previous quarter following the decline in net foreign assets. Broad money expanded by 6.5 percent, slightly lower than 7.6 percent in the third quarter. In addition, deposits at SFIs continued to accelerate while deposits at commercial banks have not yet recovered from its negative trend. Compared to the previous quarter, money multiplier declined from 10.3 times to 9.6 times. Nevertheless, velocity of money slightly increased to 0.23 times in the forth quarter. For the year 2009, monetary base expanded by 6.1 percent, lower than 11.3 percent in the previous year while broad money grew by 6.5 percent compared to 9.2 percent in last year. However, it should be noted that the significant reduction in growth rate of both monetary base and broad money was partly due to the high base effect of last year as a result of high risk aversion in financial sector.
- Commercial banks’ deposits slowed down. At the end of the fourth quarter, commercial banks’ deposits increased by 0.7 percent decelerated from 3.1 percent at the end of the preceding quarter. This resulted from growing appetite for higher yield investment under the current low interest rate environment. Considering deposit account by size, small deposit account continued to expand at a faster pace while large deposit account decelerated. However, SFIs’ deposits accelerated following government stimulus policy to boost up SFI’s loan extension (“Fast Track Policy”). For the year 2009, commercial banks’ deposits expanded by 0.7 percent slowed down from 8.5 percent in 2008. This mainly attributed by higher risk appetite of investors especially in the latter half of 2009.
- Depository Corporations’ loan accelerated as a result of household loan expansion. At the end of the fourth quarter, loan extended by Depository Corporation expanded at a faster pace, from 4.7 percent at the end of the third quarter to 6.8 percent at the end of the current quarter, owing to the household loan expansion, especially in dwelling loans and loans for purchase or hire purchase cars and motor-cycle, whereas corporate loan continually dropped from 7.4 percent to 8.3 percent. Even though improvement in economic situation has pushed credit demand for investment and working capital, but loan approval standard by commercial banks remained tight from uncertainty in future economic prospect. SFIs’ loan expanded at a faster pace, both in corporate and household sectors, as a result of “Fast Track policy”. Moreover, credit card spending accelerated as consumer confidence continued to improve. NPLs in financial institutions at the end of the fourth quarter was at 2.66 percent of the total credit outstanding, compared to 2.94 percent in the previous quarter. In addition, the delinquency ratio declined from 4.06 percent to 3.65 percent at the end of the current quarter. In 2009, private credit expanded by 3.0 percent, slowed down from 9.3 percent in 2008. This was mainly due to a contraction in corporate loan while household credit still expanded.
- Excess liquidity in commercial banking system decreased, but remained ample. Credits (excluding repurchase position with the central bank) to deposit (including bill of exchange) ratio increased to 88.6 percent from 86.6 percent in the previous quarter, reflected tighter liquidity position in the market. Similarly, excess liquidity in commercial banking system slightly declined from 1.35 trillion baht at the end of the third quarter to 1.32 trillion baht at the end of the current quarter. This was attributed from a decrease in net R/P position and net foreign assets, which significantly dropped in the last 2 months of 2009 because of a decrease in deposit and an increase in loans from foreign banks.
- Policy rate kept unchanged. At the end of the forth quarter, the Monetary Policy Committee (MPC) decided to maintain the policy rate at 1.25 percent per annum. The decision was made in order to support gradual recovery of the Thai economy by stimulating consumption and reducing operating cost of entrepreneurs. Similarly, policy rates in major countries were kept unchanged except Australia where the policy rate was adjusted upward for the third consecutive times, from 3 percent in the third quarter to 3.75 percent at the end of the forth quarter.
- Commercial banks’ deposit rate slightly declined, while lending rate remained unchanged. At the end of the forth quarter, an average 3-month time deposit rate of the major four commercial banks remained unchanged at 0.7 percent per annum, while an average of 12-month deposit rate slightly declined from 0.83 percent to 0.70 percent per annum. On the other hand, MLR lending rate remained stable at 5.86 percent per annum as a result of excessive liquidity in the system was still remained. Nevertheless, real deposit and lending rate continued to decelerate since inflation started to resume to its positive territory in the forth quarter after stayed in negative territory for three consecutive quarters. In addition, the real deposit and lending rate at the end of forth quarter stood at -3.4 and 1.8 percent per annum, respectively.
- Commercial banks earning decreased. Net profit of commercial banks decreased from 23.6 billion baht to 21.4 billion baht, or declined by 9.5 percent from the third quarter. The cause of reduction was mainly due to lower non-interest earnings as a result of investment loss and less gain on foreign exchanges. Regarding the net interest margin (NIM), it slightly accelerated to 3.05 percent per annum since the reduction in interest income and dividend was less than the decline in interest expenses. For the year 2009, commercial banks registered a net profit of 82.9 billion baht, slightly increased from 2008. Owing to the reduction in net interest income but dividend together with the improvement of net noninterest income as a result of the upward adjustment in banks’ fee and services charges.
- Capital and financial account recorded net inflow6. In the fourth quarter, capital and financial account recorded a net inflow of 5.05 billion US dollars, increased from 1.79 billion US dollars in the previous year. The net inflow was mainly contributed by inflow from banking sector, total of 4.06 billion US dollars. The main reasons for hike in banking sector inflow were i) reduction in foreign assets holding and ii) increased in foreign loan by commercial bank to settle their foreign exchange forward positions. Meanwhile, portfolio investment continued to record net outflow of 2.57 billion US dollars, lower than 3.87 billion US dollars recorded in the third quarter. In 2009, capital and financial account recorded a net inflow of 174.84 million US dollars, dramatically decrease from 14.6 billion US dollars in 2008. The drastic declined in capital and financial account were contributed by i) reduction in foreign direct investment (FDI) from 9.81 billion US dollars to 4.87 billion US dollars, following a deterioration in investment climate and ii) acceleration in outflow of debt securities investment from 1.53 billion US dollars in 2008 to 10.54 billion US dollars, as a result of Thai resident increased their foreign debt investment holding and foreign investors withdraw their investment.
- Thai baht continued to appreciate against US dollar, while nominal effective exchange rate depreciated. An average exchange rate in the fourth quarter of 2009 was at 33.26 baht per US dollar, appreciated by 1.9 percent from the previous quarter and 4.4 percent from the same period of 2008. The sign of Thai baht appreciation has emerged by the end of the first quarter, due to inflow of investment capital in response to the economic recovery that encouraged risk-appetite investment in other region, particularly in Asia. However, Thai baht depreciated against other regional currencies including that of export-competing-countries. Nominal effective exchange rate (NEER) and real effective exchange rate (REER) declined by 0.56 and 0.77 percent respectively. In January 2010, Thai baht continually appreciated to an average of 32.99 baht per US dollar, and average exchange rate over period of 1st - 18th February was at 33.11 baht per US dollar.
- SET index slightly increased from window dressing effect, while trading volume remained stable. At the end of fourth quarter, SET index closed at 734.5 points, increased by 2.4 percent from the previous quarter. This was partially from window dressing practice by institutional investors. Price index increased in all sectors especially in energy and utilities sector and property and construction sector. Daily average trading volume was at 20 billion baht, slightly decreased from the third quarter. Foreign investors’ recorded a net sell of 17.0 billion baht in the fourth quarter while institutional investors’ post a net buy of 19.4 billion baht. In the year 2009, compared to 2008 SET index significantly improved by 63.3 percent, with a spike in daily average trading volume and foreign investors’ post a net buy. The positive factors supporting such improvement were clear sign of economic recovery and sound financial performance of listed companies. In January, SET index dropped slightly to 696.6 points. Daily average trading volume was at 18.7 billion baht and foreign investors’ recorded a net sell of 7.5 billion baht.
- Bond trading volume declined, while government bond yield increased. In the fourth quarter, daily average outright trading was at 51.6 billion baht, slightly decreased from the previous quarter. Foreign investors’ post a net sell of 1.9 billionbaht. The upward pressure of government bond yield, with the maturity over one year, has subdued government bond index declined slightly. Throughout 2009, daily average outright trading decreased by 14.0 percent from higher risk appetite of foreign investors. Meanwhile, movements of government bond yield were limited from market expectation over interest rate hike and overflow of government and BOT bond issuance in the primary market. At the end of 2009, bond yield of all maturity increased especially in medium to long term bonds. In January 2010, daily average outright trading was at 62.5 billion baht. At the same time, foreign investors’ shift their position to net buy, with a record of 3.8 billion baht, while government bond yield continued to increase from December 2009.
- Corporate fundraising slightly decreased from the same period of last year, while most of fundraising was concentrated in debt securities. In the fourth quarter, private fundraising totaled at 263.0 billion baht, declined from 271.2 billion baht in the same period of last year. Fundraising through equity securities was at 7.1 billion baht, mainly from production sector especially in media and publishing products. Meanwhile, debt securities issuance recorded at 255.9 billionbaht, with 73 percent from financial intermediate sector. In 2009, corporate fundraising totaled at 1,014.2 billion baht, decreased from 1,312.2 billion baht in the previous year. Moreover, corporate fundraising throughout the year was concentrated in debt securities especially from financial intermediate and production sectors. This reflects existing demand for capital in some business sectors and, at the same time, maximizing benefits from low interest rate environment.
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