Record Thai household debt crimps rate-cut room
Published on: Thursday, December 18, 2014
DIN Ruenmeesang spends about half his monthly income making minimum payments on his seven credit cards and multiple bank loans. That isn't stopping the 33-year-old from borrowing again to buy a new car next year.Spenders like Din are making it hard for Thailand's central bank to cut interest rates even as Southeast Asia's second-largest economy struggles with weakening growth. Thai household debt has more than tripled in a decade to a record high 83.5 per cent of gross domestic product, and lower borrowing costs may exacerbate that."Life is short, and I want to enjoy it," said Din, who works in the finance department of Bumrungrad International Hospital in Bangkok, and has racked up more than 200,000 baht ($6,100) in debt from buying clothes, shoes and decorating his apartment. "When I am short of money, I use personal loans. Interest rates aren't bad. I still have room to borrow more."
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The Bank of Thailand is grappling with an economy that's already at risk of losing its position as a leading regional manufacturer, as exports may contract for a second year while shipments from Vietnam and the Philippines climb. The majority of economists surveyed by Bloomberg expect the monetary authority to keep its benchmark interest rate unchanged today, though seven of the 23 predict a 25-basis-point cut."It's a very tough call," said Warapong Wongwachara, an economist at TMB Bank Pcl in Bangkok. "Poor economic growth and super-low inflation (THCPIYOY) warrant a further rate cut, but the central bank is cautious because of the huge consumer debts."Among Southeast Asian nations, Thailand and Malaysia have experienced the fastest increase in household indebtedness in the past five years, and the level is elevated relative to income levels, Rahul Ghosh, a senior research analyst at Moody's Investors Service in Singapore, said in an October report. It poses a risk to private consumption growth and banks' asset quality as the global credit cycle gradually tightens, he said.Thai household debt was 10.03 trillion baht as of the end of June compared with 2.85 trillion baht in the same period in 2004, data show. Malaysia's household debt was 86.8 per cent of GDP as of end-2013, according to central bank data.
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The Thai central bank has said the level of household debt is "alarming," and asked the military-run government not to introduce policies that stimulate unnecessary borrowing. Prime Minister Prayuth Chan-Ocha, who seized power in a military coup in May, has unveiled a stimulus package of about $11 billion and pledged to quicken budget spending to boost consumption.
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"We want the economy to grow and people to spend money, but we also want those who have lots of debt to be careful," Governor Prasarn Trairatvorakul told reporters yesterday. "When we have lots of debt, it may be a constraint to growth."The benchmark Thai stock index fell to the lowest in almost six months yesterday. Russia's central bank unexpectedly raised its benchmark rate to 17 per cent from 10.5 per cent this week, while the Indonesian rupiah weakened to its lowest level against the dollar since 1998 as the prospect of U.S. interest rate increases damped demand for emerging-market assets."The sharp fall in the rupiah is a reminder for the BoT on the fear of capital outflows from the region in 2015," said Gundy Cahyadi, an economist at DBS Group Holdings Ltd. in Singapore. "This could be a factor to be considered," he said, adding that the central bank will probably hold the rate.Thailand expanded 0.6 per cent in the three months through September from a year earlier. GDP may grow 1 per cent this year, according to the National Economic and Social Development Board, the slowest pace since 2011 when thousands of factories were shuttered after the worst floods in almost 70 years.When consumer spending is largely driven by debt, it is sensitive to a tightening in financial conditions, said Frederic Neumann, co-head of Asian economics at HSBC Holdings Plc in Hong Kong."Household debt may not be as big a systemic financial risk as it was in the West, but it highlights a potential growth problem in Asia: without it, how resilient would consumption spending really be?" said Neumann. The Thai central bank will probably cut its key rate today, he said.Inflation eased to 1.26 per cent last month from a year earlier, the slowest in five years. Stay up-to-date by following Daily Express’s Telegram channel.
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