A credit squeeze in China is unlikely to affect Thailand's financial markets, thanks to plentiful liquidity despite recent capital outflows, says Prasarn Trairatvorakul, governor of the Bank of Thailand.
Global markets have seen volatility spike in recent weeks over concerns about whether the economic slowdown in China could result in a credit crisis.
But Mr Prasarn said the central bank has implemented a defensive strategy in absorbing excessive liquidity, while local financial institutions continue parking their money at the central bank, implying they still have surplus liquidity to finance their operations.
He acknowledged that outstanding deposits at the central bank had reduced to 4.7 trillion baht from 4.9 trillion.
But he said the central bank has been monitoring the current accounts, balance of payments and asset liability of commercial banks in order to mitigate financial risks to the Thai economy.
China's credit crunch is attributed to tightening by the People's Bank of China, the country's central bank, to cinch up credit and enhance fiscal discipline, controlling non-financial institutional lenders, he said.
The move is not likely to cause any spillover effect to financial markets in Southeast Asia, said Mr Prasarn.
The Industrial and Commercial Bank of China's operations in Thailand will not be affected as its financial activities remain robust, he said.
Mr Prasarn said rising local household debt and international market turbulence are the Bank of Thailand's key concerns.
In contrast to Brazil and Indonesia, Thailand has no problems managing foreign debt since its foreign reserves are at nearly US$200 billion, while foreign debt is estimated at $100 billion, most of it short term, he said.
The Bank of Thailand earlier this month said it is set to lower its 2013 GDP growth forecast from 5.1% following China's disappointing economic data.
However, it will need to consider information from the July 10 policy rate call of the Monetary Policy Committee (MPC) before it does. The figure will be announced on July 19 if the forecast is revised.
China's industrial output rose by 9.2% year-on-year last month, weaker than expected, while exports increased at their slowest pace in 10 months.
The world's second-largest economy is Thailand's biggest foreign market, accounting for 12% of total shipments in the first four months of this year.
Weak domestic consumption and middling investment encouraged the central bank's MPC to slash the benchmark one-day repurchase rate for the first time this year by 25 basis points to 2.5%.
Sarasin Viraphol, an executive vice-president of Charoen Pokphand Group, said Thai exports, particularly agricultural products such as rice, will feel the pinch if the Chinese economy reels.
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