The perfect non-event : Bank Of Thailand cuts interest rate

The Bank of Thailand cut short-term interest rates by a half of a percentage point yesterday as part of its ongoing efforts to jumpstart the economy.

The rate cut brings the one-day repurchase policy rate to 1.5% from 2%. Over the past three months, the central bank’s Monetary Policy Committee (MPC) has cut rates by 2.25 percentage points in an effort to spur growth. (Bangkok Post)

Repurchase interest rates are already near zero in US, UK, Japan… Did it change something ? NIL. Zero. Nada.

In Thailand, they will go to zero too. Meanwhile, the banks… display much higher rates. Check the spread.

interestrates1

Those who believe that free money (for the banks) can solve the crisis are making a big mistake. There is no demand. I mean no solvent demand.

Why a business would ask for a loan to build a new factory, when there is no demand out there, and when no bank would provide this loan in any case, because the risks are increasing, on a daily basis ?

It’s a fallacy. A fantasy of narrow minded people who think that the Magic Stick of low interest rates will solve any kind of problem. The famous Greenspan Put.

This crisis is not a liquidity crisis. It’s a solvency crisis.

The best proof in Thailand :

Siam Commercial Bank has no plans to cut its mortgage loan rates, even though interest rates continue to decline.

Rungruang Sukkirdkijpiboon, an SCB executive vice-president, said the bank’s current rates were already low.

The bank currently offers fixed rates between 3% and 5% for the first three years of mortgage loans.

“Based on current spreads for housing loans, we don’t really have room to reduce fixed rates for mortgages,” he said. (Bangkok Post)

This manager is right : why his bank would lower its fees on risks when… risks are increasing ?

Why would he lower mortgage rates for people… who are going to lose their job because of the crisis ?

Why would he take in colateral for a new mortgage a house with an overvaluated price ?

This is non sense. Pure logic. Unavoidable. No escape.

It’s true here, there, in Asia, Europe, USA, everywhere on this freaking planet.

If you still want to live in Wonderland supercharged with LSD, try to get a cheap loan on Jupiter. Or Saturn. In exchange, those aliens would be happy to increase the intergalactic trade, and will be very happy to help Thailand exporting its goods (just to please Khun Abhisit, he has such a nice haircut).

UPDATE
Three large-sized banks, Bangkok Bank, Krung Thai Bank, Bank of Ayudhya, yesterday announced lending and deposit rate reductions by 25 and 10-50 basis points, respectively. The change will take effect on Monday. (Nation)

Voila. The BOT cuts by 50. Bangkok Bank follows with… 25.

UPDATE 2
The Bank of Thailand (BOT) has urged commercial banks to cut their lending interest rates more sharply than deposit interest rates, while indicating monetary policy has limited room to boost economy.

BOT’s deputy governor Bandid Nijathaworn’s comment was a response to the banks’ cutting of rates after the central bank had reduced its policy rate by 50 basis points on Wednesday, to 1.50 per cent. (Nation)

Voila bis. The reaction of the BOT is not surprising. πŸ˜‰

4 Responses to “The perfect non-event : Bank Of Thailand cuts interest rate”


  1. 1 Hyperinflation 27 February 2009 at 5:25 pm

    Your analysis is, of course, spot on. But unfortunately, I don’t care. If Abhisit can give 2000 baht to everyone else, why shouldn’t he force the banks to lower my mortgage rate? I haven’t received anything from these giveaways yet. If my taxes are paying for these programs, I want my share of the spoils.

    The government should force the retail banks to lower their retail lending rates so that I get a break on my mortgage payments. This strategy essentially causes everyone in Thailand who saves to receive less interest, and that in turn subsidizes me. And why not? The elite do this to us all the time. It’s about time I get something out of the deal.

    I suppose this is all about perspective. You are wrong there is no demand. I want a discount! How’s that for demand?

  2. 2 ThaiCrisis 27 February 2009 at 5:59 pm

    I perfectly understand your point, and I share it (“I want my own bailout“).
    But, you have to admit that we can’t force banks to lower their rates and increase their credits… when 5 minutes before we accused them of being responsible (part of) of the crisis, because precisely they lost totally any idea of risks and used inane leverage for short term profit.
    πŸ˜‰
    Now regarding the demand, I said “solvent demand”. And that’s the key point : of course, all of us we would like to have a new house (bigger), and one condo (to rent it, to get an extra income), and this, and that… A new job, a higher salary, a new girlfriend, a new car etc. πŸ˜‰ Demand is infinite in a way. But the solvent one is of course much more limited.

    The problem is political. People are like veals (like General De Gaulle said about french people long time ago). They support the bailout. They have voted, with a striking ingenuity, for Obama thinking he would bring “change”. Yes we can. Ah ah ah what a joke. Obama has only one purpose : to save the elite, and to dilute the burden on all the tax payers. Same in France with Sarkozy. In UK, in Germany… All those politicians are used by the elite. They are puppets, nothing more.

    Bush, like a fuse, was melted…. It was necessary to change the puppet… someone who could incarnate, visually, the change. Obama. Perfect. Young. Black. Good speaker. Smart… But hey… what the guy is doing ? Bailout. On an ever greater scale than Bush and the previous clowns (Paulson).

    We are in full orwelian 1984. The “Ministry of Abudance” (to manage the scarcity), the “Ministry of Peace” (to make war). It’s the doublespeak.

    Obama is a master of doublespeak. “I want to divided the budget deficit by 2″… Sure… 2 days after, he wants 70 billions USD more for the army and present a totally inane budget.
    “I want to start up the economy”. Sure. 2 days after he wants 1 trillion USD more in taxes from “rich people”.
    “I want to protect taxpayers money”. Sure. He increases like a maniac all the bailouts, he throws money to black holes in banks, AIG, Fannie Mae, the car industry.
    “I want bankers to cut their bonus”. Perfect. In half. But meanwhile, Obama is giving them HUNDRED OF BILLIONS USD. etc.

    It works ! People are veals. They vote. They don’t understand.

    But I’m afraid that people will wake up… eventually. And when people do wake up… it leads to… violence.
    REVOLUTION.

    Always. This is what history shows us.

    It’s foolish to pretend that this time… it could be different.

  3. 3 Gloomy Observer 28 February 2009 at 2:37 am

    TC, can I respectfully point out that perhaps you are confusing “inane” with “insane” from time to time?

  4. 4 ThaiCrisis 28 February 2009 at 6:43 am

    Why you don’t like “inane” ? I think it’s great. πŸ˜‰

    But I agree that for the thai “justice” system, actually, I could have used both : inane AND insane.
    Etymology: Latin inanis
    Date: 1662
    1 : empty , insubstantial 2 : lacking significance, meaning, or point : silly


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Thailand Crisis

Coup, Economic slowdown, Terror In the South... The situation is worsening in Thailand. Bumpy road like often before.

But this time, it's different.

The key to understand the present turmoil is the inevitable... succession of King Bhumibol.


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