COVID-19 has increased responsibility of central banks to maintain stability, says Bank of Thailand governor

Bank of Thailand (BOT) Governor Veerathai Santiprabhob. The Nation/Asia News Network

BANGKOK — The central bank has three missions in the aftermath of the Covid-19 pandemic, says Bank of Thailand (BOT) Governor Veerathai Santiprabhob.

Central banks around the world have to quickly respond to the larger economic landscape changing after the virus outbreak.

First, global digitalization has been accelerating and hence financial institutions have to remodel their businesses to meet the new challenges, said Veerathai in BOT Magazine which recently published an interview with the governor.

BOT has been promoting digital payments via digital platforms such as PromptPay and QR code. During the virus pandemic, digital transactions broke records every month, and financial transactions are currently 16 million per day and there are 6 million QR code points of payment nationwide, Veerathai said.

Transactions at bank branches have decreased swiftly. The digital transactions answer new lifestyles as physical interactions for financial transactions are on a declining trend.

“We, at BOT, have many things to do on top of our existing digital infrastructure in order to expand the scope and depth of digital financial platforms, especially for businesses,” he said.

The digital financial system will support economic activities to handle highly volatile situations better, reduce cost and increase the productivity of the whole economy.

Secondly, low interest rates will stay for a longer period into the future. The global financial crisis in 2008 did lead to low interest rates. Later, central banks started to raise the interest rates under a normalization policy, as low interest rates would discourage people from saving  and maintain high debt level.

But after Covid-19 struck, central banks had to cut rates again to shore up the the economy, lessen the impact on the people and make the debt burden less severe for consumers, he said.

The BOT also joined the fray by reducing its policy rate to 0.5 percent, the lowest in recorded Thai history.

Fortunately, Thailand could control the pandemic and at the same time the local financial system is not fragile compared with many countries that have suffered from a weak financial system, he said. Taking advantage of resilient financial institutions, the BOT could also execute more financial measures via financial institutions, he reassured.

Thirdly, new financial stability does not depend only on traditional banks. The new system is highly connected, covering also the capital market, debt market, savings cooperatives and mutual funds, said Veerathai.

The virus crisis has forced many central banks to implement extra measures designed to safeguard  financial markets beyond the banking system. In the Covid-19 era, the role of the central bank to maintain financial stability has increased.

“The role of the central bank may not be new, but Covid-19 has forced the bank to push its monetary policies aggressively and quickly,” he added.