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Money in the Bank
For June 2008 year-on-year headline inflation is estimated at 8.9 %. So-called core inflation (which excludes raw food prices and energy costs) is 3.6 %. It looks like anyone interested in the issue considers the headline inflation the most important of the two numbers. After all, what is the use of measuring inflation without including raw food prices and petrol prices.
It has been predicted that headline inflation will rise above 10% in 2008, and will be possibly even higher in 2009.
Actually, we think inflation is even higher than the stated numbers, if we consider the price rises in our closeby supermarket.
To the chagrin of some local producers, the only policy in place seem regulations disallowing a price rise for certain products. We just discovered this also includes items like Cola drinks.
Meanwhile, interests on current accounts and savings accounts seem to hover around just 3 % per year maximum. Real interest on your money in the bank is now at -5 to -6 % per year.
Interestingly, the present inflation rate is higher than most bank lending rates. So, if we remember well from our limited economic training, it is beneficial to borrow money, since you will be able to pay it back with money having much less value.
Never mind the savers, and the effect low deposit interest has on their spending behaviour. Low interests seem to be globally necessary to keep economies going. In Thailand, we noticed a particular tendency of local banks to have a really big spread being deposits rates and lending rates. So, even close to zero interests on deposits, are not clearly associated with low lending rates. Maybe it is time for some new regulations on banking practices. Theoretically deposit rates could rise, while lending rates stay put (at the expense of the banks' profits).
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Does your Money keep its Value when deposited with Thai Banks? |
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Some foreigners residing in Thailand actually are required to have money in Thai banks. For example, to apply for a retirement visa, a deposit with a Thai bank is required (another option is to have a proven monthly pension income of 60,000 baht or more) of 800,000 baht. By the end of a one year period the value of this money will have declined by 5 to 6 %. You may say that your retirement visa costs you 50,000 baht a year.
In any case, you are losing money if you keep it in a Thai bank. This is true for both foreigners and local residents that live on their savings (like pensioners).
A rarely used description is used by officials of Thailand's Central Bank in characterizing present inflation levels. Apparently we are suffering from push-inflation due to high gasoline prices and high food prices. Nothing to do with inappropriate demand from consumers at all. As such it is quite unnecessary to raise interest rates.
Interestingly, this so called push-inflation is deemed less of a problem in countries like India, Indonesia, and the European Union countries, where a policy of raising interest rates is being implemented.
See also : Deposits Insurance at Thai Banks (or soon : lack of it)
Money and Property
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Investing in Construction may not be a safe bet. |
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Is investing in property a way to protect yourself against present inflation? First of all, prices of condominiums by many developers have topped 100,000 baht per square meter. Seven or eight years ago prices per square meter were hovering around 40,000 baht per square meter. As such, the price of condominium units at present is already highly inflated.
Property developers now are moaning and groaning because of higher construction costs. There are some reports of constructions being abandoned, and developers trying to adapt contracts. So at least you should stick with well known property developers, if you want to be on the safe site when buying property.
Now, we may think that prices are already over the top. This would maybe not be such a problem if you are sure to be able to sell your property in the future at a profit. However, there is no such guarantee in Thailand. Buyers seem to prefer new developments over existing second-hand property. During our long stay in Thailand, we never saw a convincing report about making profits from selling 'used' real estate. [buying and reselling property during the construction period is another, more speculative matter]. If the past is anything to go by, you should be happy if the property you buy, keeps its purchase value. So, it does not look like buying property is a good hedge against present inflation.
One major issue in keeping the value of 'old' property up is maintainance. Unfortunately, Thai property management has a poor reputation in this regard. So, about 10 years after construction, a lot of Thai building look already less than desirable. It depends of course of the people residing in a building, to keep up its maintainance. However, since foreigners are not allowed to possess the majority stake in any development, they are dependent on how the Thai unit owners decide on maintainance matters.
Money and the Stock Market
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The Thai Stock Market building (adjacent to Queen Sirikit Convention Center). |
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The Thai Stock Market is clearly in the dolldrums. Surely, stockmarkets have been in a slump all over the world. It does not look like investors will come to terms soon with the high energy prices and rising food prices, and the fallout from the credit crunch in the United States. This situation has to stabilize before it becomes interesting again to invest your money in stocks. That said, we have always been happy with the money we made investing in Thai stocks. It is just that at this moment in time, it does not appear to be an attractive option. One positive characteristic of the Thai Stock Market is that the price/earnings rate is relatively high here compared to other markets.
That said, besides the global environment, Thai politics are still highly volatile. This puts added strain to the investment environment. At present (mid 2008), it does not look like the political situation will improve soon. An additional concern is the outlook for Thailand's most important 'industry' : tourism. Tourists' arrivals are bound to decrease starting the second half of 2008 and into 2009. Cheap airline tickets are on their way out, and the added cost will make a number of travelers choose travel destinations closer to home..
Money and Direct Investment
We have nothing much to say about this issue, since we are not knowledgeable enough. So if you have millions of dollars to spare, we can give no advice on whether investing in Thailand is to be recommended or not.
We only know that setting up a small company involves a lot of paperwork and seems impossible to do without some professional help, and without involvement of others (like employing Thai personnel and accountant services).
Conclusion
At the present time (mid July 2008), it may be wise not to keep any more money than needed for general expenses in Thailand. The country has much to offer to visitors and long-term expatriate residents, but there is no good return on the money kept in Thailand, for the time being.
Updates
(21 July 2008) : Finance Minister Surapong Suebwonglee introduced a new policy : State banks (life Government Housing Bank, Government Savings Bank) must cut their interest rate spreads to no higher than two percentage points (at present around 4 percentage points), indicating they are striving for too high profits.
(17 July) Central Bank's Monetary Policy Committee (MPC) raises the one-day repurchase rate to 3.5%
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