In a bid to maintain financial stability and ensure effective monetary policy implementation, the Bank of Thailand conducts Open Market Operations (OMOs) to keep short-term interest rate in the money market in line with the policy interest rate set by the Monetary Policy Committee. The OMOs, the most actively used Monetary Policy Instruments, consists of:
- Bilateral Repurchase Operations
- Bank of Thailand Bond Issuance
- Foreign Exchange Swap
- Outright sale/purchase of securities
Besides being a tool to enhance the BOT’s flexibility and efficiency in money market liquidity management, the BOT bond issuance also links with the BOT’s attempt to curb baht volatility. Whenever the BOT purchases foreign currencies to mitigate baht fluctuation, international reserves would rise and the similar amount of baht supply would automatically be injected into the financial system. To ensure that additional money supply does not affect money market interest rate and inflation, the BOT needs to conducts monetary sterilization by issuing BOT bond to mop up baht liquidity from the financial system. Following years of repeated actions in the foreign exchange market, the BOT has issued an enormous amount of BOT bond.
The BOT supervises and manages the auction of government debt securities in the primary market while it also acts as a registrar and paying agent for both interest and principle of the debt instruments. The BOT has developed the Bangkok Interbank Offered Rate (BIBOR) and the Private Bilateral Repo to widen and deepen the country’s money market. The BOT has also joined hands with the Ministry of Finance and other relevant agencies on debt market development initiatives such as the development of government debt issuance in the primary market, improvement of liquidity and efficiency in the secondary market, and development of settlement infrastructure for debt securities market.
Most of the government’s debt securities are sold to financial institutions through Debt Securities Auction at predetermined Auction Schedule. To grant opportunities for the general public to invest in low-risk government debt securities when deposit rates were excessively low, savings bonds have been offered for public subscription at times. These bonds include the Ministry of Finance’s Savings Bonds and The Bank of Thailand’s Savings Bonds.