Financial stress Prior to 2015, financial stress indicators exhibited a strong co-movement with the dispersion index (Slide 4). However, this relationship has since become less pronounced. The de-coupling of financial stress indicators and the dispersion index is particularly striking during the recent pandemic period. In the spring of 2020, when indicators of financial stress increased dramatically, the dispersion index of overnight money market rates remained at remarkably low levels, mainly owing to the structural shift to largely secured transactions and the high amounts of central bank liquidity outstanding even before the pandemic. The low dispersion across overnight rates during the pandemic stands in contrast to the sharp and persistent rise in term money market and commercial paper rates, which points to measurable tensions in other segments of the market (left-hand side of Slide 5). Commercial paper rates rose quickly as the demand for commercial paper from non-bank financial institutions froze at the height of the pandemic crisis. In March 2020, investment and money market funds faced heavy withdrawals from their investors due to a dash for cash and tried to sell off commercial paper before maturity to build up liquidity buffers. [12] The events of the spring therefore clearly demonstrated the extent to which the liquidity management policies of non-banks can have severe ramifications for broader market functioning and hence also for the transmission of monetary policy.
Prasarn Trairatvorakul: Managing emerging market challenges – Thailand’s and Asian perspectives Remarks by Dr Prasarn Trairatvorakul, Governor of the Bank of Thailand, at the reception of the 2011 Emerging Markets Central Bank Governor of the Year Award for Asia, Emerging Markets, Washington DC, 24 September 2011. *  *  *  Distinguished Ministers and Governors, Ladies and Gentlemen, It is my great honor to receive this prestigious award, and I would like to thank the Emerging Markets for your kind recognition. In fact, such recognition is unexpected as I simply fulfill my obligations as central bank governor. To be awarded for doing your job, I guess the job must be quite difficult or challenging. More importantly, I consider this award a recognition of the dedication of the staff of the Bank of Thailand, who have worked hard to ensure Thailand’s sustainable economic and financial stability over the years. As the Bank of Thailand enters its seventieth anniversary next year, our institution is faced with a great challenge to maintain price stability while sustaining growth in the midst of heightened global economic and financial risks. We have no luxury of taking a wait-and-see approach but to continue our best efforts to better manage the external spillovers on our economy and financial system. With continued volatile global capital movements, central banks in emerging markets need to ensure that our financial institutions and markets remain robust; that they can safely and efficiently manage foreign capital inflows as well as outflows, without disrupting the real economy.