Commercial banks have sufficient liquidity to finance the government's 2-trillion-baht borrowing plan for infrastructure development, says Bank of Thailand governor Prasarn Trairatvorakul.
Prasarn: Liquidity is sufficient for plan
That is shown by the fact that banks have directed their excess liquidity of 500-600 billion baht to invest in the overnight repo market.
"Commercial banks have a different magnitude in terms of liquidity, but there is sufficient liquidity overall," Mr Prasarn said.
In addition to the overnight repo market, surplus liquidity in other debt instruments totals 4.4 trillion baht.
Based on the investment period of the infrastructure scheme spanning seven years, 300-400 billion baht is expected to be disbursed each year on average.
That figure is equal to the annual fiscal deficit and not too excessive for the monetary system to handle, Mr Prasarn said.
The Yingluck Shinawatra government earlier expected the infrastructure projects to start next year.
But with the hefty investment, concerns grew over whether liquidity in the local financial market would dry up.
Mr Prasarn said the Thai stock market and capital inflows have shown signs of uncertainty, noting that this depends on how domestic conflicts can be managed effectively.
He insisted capital inflows and outflows are well balanced, as indicated by the minimal movement of the baht against the US dollar in recent weeks.
With a large amount of foreign capital flowing into Thailand over the past five or six years, some degree of capital outflows is not a concern, said Mr Prasarn, adding that the central bank still monitors capital movement, particularly fund outflows.
Should capital flee from Thailand at a rapid pace after the US Federal Reserve begins tapering its asset purchases, management of the foreign exchange market may be needed to stop volatility.
The political conflict over the US fiscal impasse is deemed as a headwind hindering a full economic recovery in that country, said Mr Prasarn.
He believes the Democrats and Republicans will compromise to a certain degree, but the process is time-consuming and can weaken the economic recovery if talks are prolonged.
President Barack Obama recently signed a bill funding the government until next Jan 15 and raising the debt limit until Feb 7 to end the government shutdown and avoid a debt crisis.
With negotiations on the US budget and debt ceiling set to resume early next year, economists and the market expect the Fed will not start scaling back its US$85-billion monthly asset purchases before March.