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Monetary Operations Framework at the Bank of Thailand
1 October 2015
2
Outline
• Bank of Thailand monetary policy and operation framework
1. Reserve requirement
2. Open market operations (OMOs)
3. Standing facilities • Impact of spillovers on Thailand and policy responses
3
Outline
• Bank of Thailand monetary policy and operation framework
1. Reserve requirement
2. Open market operations (OMOs)
3. Standing facilities • Impact of spillovers on Thailand and policy responses
4
Flexible Inflation Targeting in Thailand
Framework
Strategy Implementation
Ultimate target
Intermediate target
Operational target
Instruments
Price stability
Sustainable growth
Expected inflation
(Headline inflation of 2.5% +/- 1.5%
annually average)
Policy interest rate
(1-day RP rate)
• Reserve requirement
• Open Market Operations
• Standing facilities
(+/- 50 bps.)
5
Various monetary instruments are used to steer short-term interest rates as well as
serve the objective of promoting developments of financial markets.
Required and Excess reserves
Autonomous Factors
Standing Facilities
Open Market Operations
Demand for Reserves Supply of Reserves
Statutory requirements for some types of FIs to hold a specified part of their portfolio in reserve money
1. Reserve requirement Instruments
The purchase or sale of financial instruments by either in primary or secondary market. Bilateral repurchase (BRP) Issuance of BOT bonds/bills Outright purchase/sale of government
securities Foreign exchange swap
2. Open Market Operations
The lending or borrowing of liquidity of high-quality financial assets at penalty rates.
3. Standing Facilities
BOT monetary operations
6
Criteria Types of Liquid Asset
Remaining (including (a) (b) and (c)) no less
than 6%
Unencumbered eligible public securities and term deposits at BOT such as government bonds, BOT bonds,
MOF-guaranteed state-enterprise bonds
(c) No more than 2.5%
Vault cash
(b) No more than 0.2%
Cash at the central cash centers of commercial
banks
(a) No less than 0.8%
Current Account Deposits at BOT (C/A)
1%
6%
No less than 1%
1. Reserve requirement
• Commercial banks are required to maintain a liquid asset ratio of 6% of deposits base
(including non-resident Baht deposits, net foreign borrowing with maturity less than 1 year, bill of exchange and promissory notes)
• Comprising
A minimum of 1% as deposits at the Bank of Thailand (reserves, CAB)
A maximum of 2.5% in vault cash
The rest as eligible securities (government bonds, BOT bonds, MOF-guaranteed state-enterprise bonds)
• Maintenance period: fortnightly, lag 1 period
• Non remunerated (CAB portion)
• Allow averaging
• Allow carry backward/forward 5% of requirement
“Reserve requirement is currently used for liquidity management, rather than for monetary policy signaling purpose. RR helps stabilize the demand for reserve money which benefits the daily liquidity forecasting and management.”
8
1. Bilateral repurchase (BRP)
2. Issuance of BOT bonds/bills
3. Foreign exchange swap
4. Outright purchase/sale of government securities
2. Open Market Operations
“The BOT Bonds are still the main
absorption instrument”
Outstanding of BOT’s Monetary instruments
9
0
1
2
3
4
5
6
7
8
9
10
1996
19
97
1998
19
99
2000
20
01
2002
20
03
2004
20
05
2006
20
07
2008
20
09
2010
20
11
2012
20
13
2014
TlnTHB
Foreign
Corporate
BOT
SOE
Government
Coordination with the MOF
• Both MOF and BOT are major debt securities issuers in Thailand.
• The BOT coordinates closely with the PDMO: types, maturity, issue size, auction schedule, etc.
• Eligible bidders: – are the same for both govt bonds and
BOT bonds – include many groups of institution
investors • Both MOF and BOT try to design issuance
schedule with market development objective in mind as well • Auction frequency • Consolidation of issues
Domestic Bond outstanding by Issuers
10
The interest rate corridor effectively set boundaries for short-term market rates and thus help contain short-term interest rates volatility.
Feature Deposit Facility Lending Facility
Operating Time
16.30 – 17.00 17.00 – 17.30
Interest rate Policy rate
– 0.5% Policy rate
+ 0.5%
Collateral N/A Bonds issued or guaranteed by government
Tenor Overnight Overnight
Counterparties Financial institutions with current
accounts at the BOT and have applied for membership
3. Standing Facilities
Policy rate
Deposit Facility
Lending Facility
50 bps
Inte
rest
rate
Time
Interest rate corridor
11
Summary: Open Market Operations & Standing Facilities
Instruments Counterparty Frequency Operational time Tenors Methods Open Market Operations
- BOT Bond Eligible bidder 2 – 3 times/wk 9.15 - 9.30 14D/3M/6M/
1Y/2Y/3Y Multiple-price Auction
-BRP BRP PDs Daily Regular: 9.30 - 9.45 MPC: 14.30 - 14.45 FTO: 16.00 - 16.15
1D/7D/ 14D/1M
1D: Fixed-rate Tender (at Policy rate)
>1D: Variable-rate Tender (spread over policy rate)
- Bond Outright e-Outright CPTs As required 10.00 - 11.00 - Multiple-price Auction
- e-Swap (Buy/Sell Swap) Eligible
commercial banks Daily 11.30 - 13.30
1D/7D/14D/1M/ 3M/6M/9M/12M
Multiple-price Auction
- Sell/Buy Swap As required 8.30 - 16.30 < 1 ปี OTC
Standing Facilities - Deposit Facility FIs with C/A
At BOT Daily 16.30 - 17.00 O/N Policy rate-50 bps
- Lending Facility Daily 17.00 - 17.30 O/N Policy rate+50 bps - O/N ILF Facility BAHTNET members Daily End of day O/N Policy rate+50 bps
8.00 9.00 10.00 11.00 12.00 13.00 14.00 15.00 16.00 17.00 18.00
BOT Bond BRP
Outright e-Swap BRP (MPC) BRP (FTO)
DF LF
12
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
Jan-
08
Mar-0
8 Ap
r-08
Jun-
08
Aug-
08
Oct-0
8 De
c-08
Fe
b-09
Ap
r-09
Jun-
09
Aug-
09
Oct-0
9 De
c-09
Fe
b-10
Ap
r-10
Jun-
10
Aug-
10
Oct-1
0 No
v-10
Ja
n-11
Ma
r-11
May-
11
Jul-1
1 Se
p-11
No
v-11
Ja
n-12
Ma
r-12
May-
12
Jul-1
2 Se
p-12
No
v-12
Ja
n-13
Ma
r-13
May-
13
Jun-
13
Aug-
13
Oct-1
3 De
c-13
Fe
b-14
Ap
r-14
Jun-
14
Aug-
14
Oct-1
4 De
c-14
Fe
b-15
Ap
r-15
Jun-
15
Aug-
15
% Policy rate O/N Interbank O/N Private Repo 1M Bill 1M BIBOR
Money market rates
So far, the current framework has served its functions well. Short-term money market rates have been stable and moved in line with the policy rate.
Source: BOT
13
Outline
• Bank of Thailand monetary policy and operation framework
1. Reserve requirement
2. Open market operations (OMOs)
3. Standing facilities • Impact of spillovers on Thailand and policy responses
14
27.0
28.5
30.0
31.5
33.0
34.5
36.0
37.5 -5
0
5
10
15
20
25
30
Dec-
08
Jul-0
9
Feb-
10
Sep-
10
Apr-1
1
Nov-
11
Jun-
12
Jan-
13
Aug-
13
Mar-1
4
Oct-1
4
May-
15
Bond Equity THB Bln USD
QE2 QE3
THB/USD
The extraordinarily low interest rates in advanced economies has caused substantial porfolio inflows into
Thai bond and equity markets
Change in foreign holding in bond and equity since Dec 2008
Source: BOT, Reuters
QE1
15
Foreign investors mainly invest in long-term government bonds, while the foreign demand for short-term bills depends heavily on
exchange rate expectation. Foreign Holdings of government and BOT Bonds
Source: BOT
Change in Foreign Short-term Bond Holding and Exchange Rate
24.5
26.0
27.5
29.0
30.5
32.0
33.5
35.0
36.5
-80
-60
-40
-20
0
20
40
60
80
Feb-
09
Aug-
09
Feb-
10
Aug-
10
Feb-
11
Aug-
11
Feb-
12
Aug-
12
Feb-
13
Aug-
13
Feb-
14
Aug-
14
Feb-
15
Change in NR Bond Holding (<=1Y)
USDTHB (RHS)
Bln THB USDTHB
16
Source: BOT
Higher foreign demands for government bonds have put pressure on long-term bond yields. However, short-term yields
has mainly been driven by market expectation on the policy rate.
Change in Foreign Bond Holding and Thai Government Bond Yields
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
-80
-60
-40
-20
0
20
40
60
80
Mar-0
9 Ju
l-09
Nov-
09
Mar-1
0 Ju
l-10
Nov-
10
Mar-1
1 Ju
l-11
Nov-
11
Mar-1
2 Ju
l-12
Nov-
12
Mar-1
3 Ju
l-13
Nov-
13
Mar-1
4 Ju
l-14
Nov-
14
Mar-1
5 Ju
l-15
% BlnTHB >1YR (LHS) 5Y 10Y TH Policy Rate 10Y UST
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
-80
-60
-40
-20
0
20
40
60
80
Mar-0
9 Ju
l-09
Nov-
09
Mar-1
0 Ju
l-10
Nov-
10
Mar-1
1 Ju
l-11
Nov-
11
Mar-1
2 Ju
l-12
Nov-
12
Mar-1
3 Ju
l-13
Nov-
13
Mar-1
4 Ju
l-14
Nov-
14
Mar-1
5 Ju
l-15
% BlnTHB <=1YR (LHS) 6M
3M TH Policy Rate
17
Foreign inflows have boosted the Thailand’s stock index. However, this was partially offset by domestic factors.
SET Index and P/E Ratio
5
10
15
20
25
30
200
400
600
800
1,000
1,200
1,400
1,600
1,800
Dec-
08
Apr-0
9
Aug-
09
Dec-
09
Apr-1
0
Aug-
10
Dec-
10
Apr-1
1
Aug-
11
Dec-
11
Apr-1
2
Aug-
12
Dec-
12
Apr-1
3
Aug-
13
Dec-
13
Apr-1
4
Aug-
14
Dec-
14
Times Index SET Index P/E Ratio (RHS)
QE1 QE2 QE3 Tapering
Source: The Stock Exchange of Thailand (SET)
18
The spillovers from QE-related actions has been clearly witnessed by the movement of Thai Baht and its volatilities.
0%
2%
3%
5%
6%
8%
9%
11%
12%
Jan-
07
Jun-
07
Nov-
07
Apr-0
8 Se
p-08
Fe
b-09
Ju
l-09
Dec-
09
May-
10
Oct-1
0 Ma
r-11
Aug-
11
Jan-
12
Jun-
12
Nov-
12
Apr-1
3 Se
p-13
Fe
b-14
Ju
l-14
Dec-
14
May-
15
28
29
30
31
32
33
34
35
36
37
Jan-
07
Jun-
07
Nov-
07
Apr-0
8 Se
p-08
Fe
b-09
Ju
l-09
Dec-
09
May-
10
Oct-1
0 Ma
r-11
Aug-
11
Jan-
12
Jun-
12
Nov-
12
Apr-1
3 Se
p-13
Fe
b-14
Ju
l-14
Dec-
14
May-
15
USDTHB
Movement in THB against USD THB Volatility
QE1 QE2 QE3 QE1 QE2 QE3
Source: BOT
“Taper talk”
Source: BOT
19 Source: NESDB, BOT
The BOT has taken more active role in curbing excessive THB volatility to ensure that the QE spillovers would not have
great impact on the real economy.
International Reserves
0
50
100
150
200
250
Jan-
03
Jul-0
3 Ja
n-04
Ju
l-04
Jan-
05
Jul-0
5 Ja
n-06
Ju
l-06
Jan-
07
Jul-0
7 Ja
n-08
Ju
l-08
Jan-
09
Jul-0
9 Ja
n-10
Ju
l-10
Jan-
11
Jul-1
1 Ja
n-12
Ju
l-12
Jan-
13
Jul-1
3 Ja
n-14
Ju
l-14
Jan-
15
Jul-1
5
Bln USD
Net reserves
Gross reserves
Contribution to Real GDP International Reserves Contribution to Real GDP
20
Similar to other EM central banks, the BOT has accumulated reserves and the currency mismatch on its own balance sheet.
Foreign assets
Domestic assets Monetary
Base
Equities
Non-monterary liabilites (OMOs)
Assets Liabilities and Equities
21
BOT has adjusted its monetary operations by changing allocation of monetary instruments.
Proportion of Monetary Instruments as of 31 July 2015
Proportion of Monetary Instruments as of 31 July 2012
Source: BOT Note: The 4-year BOT bond was no longer issued.
2013 - present: Shortened maturity profile as a result of a tighter market condition, a shift in investors’ demand, and high uncertainties in global financial markets.
Before 2012: Lengthened maturity profile in order to cope with a rapid build-up in need for sterilization.
22
Total Absorption Outstanding and Average Maturities
To enhance flexibility in its liquidity management framework, the BOT has shortened maturity profile of the monetary instruments.
Source: BOT
0
100
200
300
400
500
0
1,000
2,000
3,000
4,000
5,000
6,000
Dec-
08
Jun-
09
Dec-
09
Jun-
10
Dec-
10
Jun-
11
Dec-
11
Jun-
12
Dec-
12
Jun-
13
Dec-
13
Jun-
14
Dec-
14
Jun-
15
BlnTHB Total Absorption Outstanding Remaining Maturity (RHS) Original Maturity (RHS) Days