Outline Open Market Operations & Effectiveness of Monetary Policy

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1 Outline Open Market Operations & Effectiveness of Monetary Policy o be presented to Bank of hailand s Symposium on Monetary Policy in a ew Environment -4 uly How do S interest rates pass through? Prepare for return of volatility Learn from past experiences of 8 s Structural Issues actics Micro-Macro Linkages of MP Effectiveness of MP =? Policy Implications RW HH Imports/Remittances Exports ax Liberalization Bond in Inst OV ep Loan orp BO Securitization Saving Interest/Wage/Salary I P Monetary ransmission Mechanism rederic S. Mishkin: Ec Persp, all 95 Interest rate channel M => i => I => Y Exchange rate channel M => i => E => X => Y sset price channels M => Pe =>q=(mk Pr/Repl osts) => I => Y M => Pe => Wealth => => Y redit channels M => Bnk ep => Bnk Loans => I => Y M => Pe => dv Sel&Moral Haz => L =>I => Y M => i => ash low => SMH => L => I => Y M => Pe => in istress => => Y rend in Reserve Requirements 9 96 ustralia.. ; Z anada rance ermany apan S Lower RR & r Insensitivity Money market rate r Working Balances Reserves

End of maintenance period effects on r Interest Rate orridor Money market rate r iscount or Remunerated ep Reverse Repo, MSP Working Balances Lombard, O/, Rediscout, Bank Rate ed unds Rate,

rate varies from target <.5% Much arrower than orridor (.

2 End of maintenance period effects on r Interest Rate orridor Money market rate r iscount or Remunerated ep Reverse Repo, MSP Working Balances Lombard, O/, Rediscout, Bank Rate ed unds Rate, ender, SOI, all & ash Rates Reserves eneral Principles ctive Liquidity Management Increased ses of Signaling Prevalence of Interest rate orridor larify signals; Prevent abuses; iscretionary S rate varies from target <.5% Much arrower than orridor (.5 - %) entral Bank Balance Sheet Vaez-Zadeh (99) ecomposition of Variance of Mb M = + + P + OH (net) (net) laims on Bk (gross) urr in irc Mb Reserve ep Other Item (net) apital cc. σ M = σ + σ + σ B + σ + σ B + σ B + [ σ O + σ O +σ BO + σ O ] σ * M =σ M - σ - σ B - σ B > σ M OMO= - σ gp - σ fp - σ fg σ m - σ gp - σ fp - σ fg ccom.= σ m / σ * m

3 5 I ountries ccommodation hai us an Z I ountries ccommodation hai us an Z on-i ccommodation hai r r ap S I Mb Volatility 6 per. Mov. vg.(z) 6 per. Mov. vg.(hai) 6 per. Mov. vg.() 6 per. Mov. vg.(an) 6 per. Mov. vg.(us) 9 6 on-i Mb Volatility 6 per. Mov. vg. (r) 6 per. Mov. vg. (ap) 6 per. Mov. vg. (r) 6 per. Mov. vg. (S) hai Mb Volatility vs Others 6 per. Mov. vg.(hai) 6 per. Mov. vg.(oth8)

4 million BH Monthly Mb movements /\MB(-) M-moving/\M(-) //997 /5/997 /8/997 //997 //998 /5/998 /8/998 //998 //999 /5/999 /8/999 //999 // /5/ /8/ // // /5/ on-i r Volatility 6 per. Mov. vg.(s) 6 per. Mov. vg.(r) 6 per. Mov. vg.(ap) 6 per. Mov. vg.(r) I r Volatility 6 per. Mov. vg.(hai) 6 per. Mov. vg.(z) 6 per. Mov. vg.(us) 6 per. Mov. vg.(an) 6 per. Mov. vg.() eneral rends Interest Rate Volatility eclined Monetary Base Volatility Increased hai % below Others Monetary ccommodation rose Why Worry So Much about r-volatility? aily hanges in r from RP4d arget lear vs. nclear Signals -ay 4-ay -ay 4-ay B

5 I orrelation r & rl 6 per. Mov. vg.(us) 6 per. Mov. vg.(hai) 6 per. Mov. vg.() 6 per. Mov. vg.(z) 6 per. Mov. vg.(an) on- I orrelation r & rl 6 per. Mov. vg.(ap) 6 per. Mov. vg.(r) 6 per. Mov. vg.(r) 6 per. Mov. vg.(s) I orrelation r & rd 6 per. Mov. vg.(hai) 6 per. Mov. vg.(us) 6 per. Mov. vg.() 6 per. Mov. vg.(an) 6 per. Mov. vg.(z) on- I orrelation r & rd 6 per. Mov. vg.(ap) 6 per. Mov. vg.(s) 6 per. Mov. vg.(r) he ail that can wag the og: Qualification (Hardy 997) Optimal interest rates =? nknown Limit intervention=>more info cquisition Info => market prices => r Policy Micro-management => Loss of Information Opt Intervention: r stability vs. info efficiency Some room for fluctuation Money Market Input => MPB So, has hai MP been effective? orrelations improving after crisis ER lexibility => independent MP Since => announce clear target: RP4d May be early to conclude

6 Policy Implications Market participants prepared for Mb volatility within limits More active liquidity management r stability vs. discretion vs. moral hazard Place more emphasis on signaling Standing acility ~ safety valve & onfirm signals Possible magnitude % of Mb ~ bb Both injections & withdrawals: S only Benefits / osts nalysis What does society gain? More efficient money market => Sustain rwth What do commercial banks gain? More convenient S liq adjustments What does the BO gain? Stronger transmission mechanisms More effective MP Other Structural Issues Sources of Mb hanges SORES O MOERY BSE & HEIR MOVEMES Bond Market evelopment Private Repo Prepare for RS & 4 Hrs ransactions Rapid speed of trans & Info assymmetry=> Pre-Settlement Interbank Rounds endency towards O/ rates Specific structure ~ country specific /9/997 //997 //998 /6/998 /9/998 //998 //999 /6/999 /9/999 //999 // /6/ /9/ // OHERS I I_R // aily hanges in ER B:Yen B:S Euro /\B/Y /\B/$ /\Euro he Mechanics of Money Multiplier B Multiplier Baht BBL Oth Is 8 B B 9 Baht

7 Reserve / Mb Ratios (I) S Z Reserve/Mb Ratios (on-i) R R P S Reserve/Mb Ratio (hailand) HIL: Reserves/Moetary base omparison of Monetary Base rowth Rates (M5Yrs) hai vg Wghtvg ap Sing

Trailing PE Forward PE 9.7. Hold 31 Analysts. 1-Year Return: -8.1% 5-Year Return: -0.7%

Trailing PE Forward PE 9.7. Hold 31 Analysts. 1-Year Return: -8.1% 5-Year Return: -0.7% Last lose 47.74 (USD) Avg Daily Vol 25.9M 52-Week High 59.53 Trailing PE 10.8 Annual Div 1.80 ROE 12.6% LTG Forecast 10.9% 1-Mo -4.1% 2019 April 11 NEW YORK Exchange Market ap 221.6B 52-Week Low 43.02