Roles of the Bank of Thailand in developing the bond market A High-level Domestic Bond Market Development Steering Committee was set up by the Government in January this year. The committee is chaired by the Finance Minister and comprises high-level representatives from both the public and private sectors, including the Bank of Thailand. The aim of the committee is to promote the development of the domestic bond market in five key areas, namely, (1) the primary market (2) the secondary market (3) taxes (4) market infrastructure and (5) market information. As for the Bank of Thailand, we have been tasked with the responsibility to develop an active secondary market. To meet this challenge, the Bank of Thailand has mapped out a multi-year strategy from which our work plan for bond market development this year will focus on six areas. First is the development of the private repo market. The repo market will provide bond market participants with the tools to hedge their bond position, as well as to manage liquidity more effectively. The private repo market will also provide an important link between the money market and the bond market, meaning that liquidity in the secondary bond market can be substantially improved once a well-functioning private repo market is in place. Second, the Bank of Thailand will coordinate with the Thailand Securities Depository to set up a "Bond Lending and Collateral Management Unit" to activate the bond lending business. This again will help facilitate the private repo market and enhance overall market liquidity.
In such a scenario, the net result in the short term will not necessary be falling inflation - it could just as well be rising inflation. This is one of the risks in this context. Another risk that has not been discussed much yet refers to a longer-term perspective. Changes create both winners and losers. Lower purchase prices for a business owner or for us consumers may involve a lost profit margin for other companies. An increase in productivity may involve redundancies and that companies which are unable to keep up with developments are wiped out. The structural transformation thus contains not only possibilities, but also social maladjustment that must be dealt with by the labour market, the capital markets, the education system, etc. What does this mean for monetary policy? I intend to discuss four areas that have figured in debates on monetary policy and the ‘new and old’ economy: the effects on interest rates, the effects on purchasing power, the economic relations and the Riksbank’s intellectual framework. It would not have been possible for interest rates to lie at the current levels if price stability had not lowered the risk premium that lenders require for the uncertainty factor. In addition, the reduction in public borrowing and declining indebtedness has led to real interest rates being pulled down. But would this still apply if we had a higher growth in productivity in the future? One effect of higher growth and increasing investment could be rising real interest rates.