CENTRAL BANKS in emerging Asian markets are becoming more susceptible to supply-side shocks, with the region’s economies facing “unprecedented” risks due to trade uncertainties, the former governor of the Bank of Thailand (BoT) said.
Speaking at a central bank symposium Monday in Panglao, Bohol, former governor Sethaput Suthiwartnarueput said emerging markets have weathered financial shocks but trade disruptions may challenge their resilience.
“(T)he challenge and the problem is that the kind of shocks that we’re facing going forward are pretty unprecedented, and they’re the kind of shocks that are going to be much more difficult for us to navigate,” Mr. Suthiwartnarueput said.
“If you look ahead, the kind of shocks that we’re likely to face are much more… they’re more real than financial. They’re trade type shocks, and trade type shocks are much more difficult for us to handle as emerging markets,” he added.
He noted that supply-side shocks will come from structural changes in the supply chain, demographic shifts and climate change.
This, Mr. Suthiwartnarueput said, could diminish the guiding capacity of monetary policy as central banks are not well-equipped to address supply issues.
“If the shocks are coming from the supply side, then we don’t have, necessarily, the right kind of tools in the monetary front to address those kinds of shocks,” he said. “They’re much better tuned to addressing demand-side issues than the supply side.”
The former BoT governor said having robust buffers would allow central banks to gain more flexibility in managing interest rates.
“When our banking sector is solid and there’s enough capital and liquidity buffers, we’re able to handle greater… interest rate flexibility,” he said. “When we have adequate buffers on foreign exchange reserves, it allows us to use these complementary tools like FXI (foreign exchange intervention) as part of our policy plan.”
During the same forum, an economist said a foreign exchange playbook must be integrated in the central bank’s monetary policy framework to help stabilize financial markets and allow the foreign exchange market to better absorb shocks.
“Timely, targeted FXI can restore liquidity and limit disorderly moves, particularly when balance-sheet FX mismatches are material and markets are shallow,” he said.
A private bank official also said the BSP should disclose its FXI to the public instead of keeping it among banks to ensure transparency and help it build credibility.
The symposium rules only allow the keynote speaker to be identified by name. — Katherine K. Chan