Published on April 29, 2008
The BOT is closely watching rising external and internal risk factors, which could dampen the balance sheets of the non-bank private sector.
The central bank's inflation report warned that if the inflation continued to gather speed over increases in incomes, householders' ability to repay their debts would be seriously eroded.
Consumers were now more cautious about spending and borrowing as their living costs had surged because of inflation. That was evident by the slowdown in credit-card spending.
BOT assistant governor Suchada Kirakul said the risk of inflation remained with oil prices staying high, which was one of the key factors to be monitored.
She said the central bank had to tackle inflation if it wanted to achieve economic growth of 5 per cent.
"Although inflation is in the forecast range, no one knows the level to which oil prices will climb," she said.
Earlier, BOT deputy governor Bandid Nijathaworn expected the banking system's credit growth would slow as banks take a more cautious stance on loan approvals.
However, the household sector's default rate improved in the fourth quarter of last year compared with previous quarters, as a result of economic recovery, according to the inflation report.
"Non-performing loans and the default rate for credit card and personal loans have gradually declined after rising since the end of 2006," according to the inflation report.
The BOT forecast the private sector would continue to battle risk factors like oil prices, raw material prices and transport costs. But their ability to raise prices was restricted by government regulations as well as consumers' reduced purchasing power.
Export companies, meanwhile, were faced with the upside risk of a global economic slowdown, worsened by the US recession.
"The Monetary Policy Committee evaluated that although the business sector's financial status is strong enough to handle the risks, the uncertainty remains high. So the committee will follow the development of the risk factors closely," the report said.
In the fourth quarter of last year, non-bank companies' ability to repay debts also improved as a result of decreasing interest rates. This was experienced by recovered interest coverage ratio as the companies had sound liquidity and low debt-to-equity ratios.