[BANGKOK] The disconnect between the real economy and record-high financial markets worldwide is worrying, according to the Bank of Thailand (BOT), as asset prices soar despite mounting shifts in global trade.
“Nobody would have thought that the huge change in the global trade configuration or landscape would take place against the backdrop of ever-increasing stock markets and compressed risk spreads,” Piti Disyatat, BOT deputy governor, said in an interview at his office in Bangkok on Thursday (Oct 9). “As central bankers, we naturally get nervous about this disconnect a little bit.”
Stock markets from the US to Asia have surged to record highs this month, fuelled by an AI-driven frenzy that’s drawn parallels to the late-1990s dot-com boom, which ended in a spectacular crash. The exuberance has spilt beyond equities, with gold soaring past US$4,000 an ounce and Bitcoin hitting a new high.
The market rallies are putting authorities on guard. The International Monetary Fund has cautioned that “if a sharp correction were to occur, tighter financial conditions could drag down world growth”.
The Bank of England this week flagged the risk of a sharp market correction, as equity-market valuations appear “stretched”. South African Reserve Bank governor Lesetja Kganyago last month said that soaring prices of some cryptocurrencies “suggest the formation of large asset bubbles”.
In a sign of caution, BOT unexpectedly left its key interest rate unchanged this week, citing the need to preserve the limited policy room to deal with a weakening economic outlook. The bank will keep monetary policy loose through next year due to the country’s weak economy and the risk of further global shocks, Piti said.
Thailand’s financial markets are not showing any signs of a bubble, but authorities are keeping an eye on the baht after it surged more than 4 per cent this year, Piti said. “It’s not at the stage yet where it’s clearly out of line with fundamentals.”
While the Thai central bank has been intervening in the currency market after US President Donald Trump’s tariffs boosted global volatility, it does not target a specific level for the baht, he said.
“The main reason we go into the markets is to chop off the excess volatility,” Piti said. “It’s very symmetric.” BLOOMBERG
