THAILAND need not reduce interest rates immediately as its economic outlook remains unchanged, said the chief of its central bank on Friday (Sep 20), after the US Federal Reserve eased policy.
He also stressed its independence amid government pressure for a rate cut.
Bank of Thailand (BOT) governor Sethaput Suthiwartnarueput added that reducing borrowing costs would not help the country’s debt problems, pushing back at a government that says the current policy rate is hamstringing its efforts to revive the stuttering economy.
Thailand’s key interest rate has been at 2.5 per cent for a year – a decade-high.
The BOT has resisted calls for easing in an extended stand-off with the government as it struggles to kick-start an economy that grew only 1.9 per cent in 2023, and is forecast to expand just 2.6 per cent this year.
“The policy is still outlook-dependent. The current outlook is still the same as forecast. Nothing has changed,” Sethaput said, adding that an off-cycle meeting before the next rate review on Oct 16 was unnecessary.
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“If we focus too much on the latest information, there will be a lot of volatility. We don’t want monetary policy expectations to exacerbate market volatility,” he noted.
The central bank chief added that rate cuts would not help with Thailand’s problem of household debt, where the ratio is close to 91 per cent of gross domestic product, among the highest in Asia.
The issue should be addressed with a policy mix, such as debt restructuring for vulnerable groups, the governor added.
Long-term stability
Sethaput on Friday underlined the importance of central banks remaining independent, noting that central banks could lose the principle of “long-term vision” if they are not sufficiently so.
“Central banks are designed to support the implementation of monetary policies that must give weight to long-term stability,” he said.
While lower interest rates could raise short-term growth, there was a trade-off with inflation and that could create vulnerabilities such as debt accumulation and speculation, the governor cautioned, constraining long-term growth and risking a crisis.
The governments of Thai Prime Minister Paetongtarn Shinawatra and predecessor Srettha Thavisin have urged a rate cut to augment their fiscal stimulus, including the imminent rollout of a flagship scheme to give 10,000 baht (S$391) handouts to 45 million Thais to spur activity.
The BOT chief’s remarks come just weeks after the rise to power of Paetongtarn, who earlier this year said central bank independence was an obstacle to solving economic problems.
It also comes as her ruling Pheu Thai Party nominates its loyalist Kittiratt Na Ranong, a former finance minister with a record of clashing with the central bank, to be the next BOT board chairman.
The central bank’s board chair has no say in monetary policy, but is involved in appointments of governors and the monetary policy committee.
Sethaput also said the BOT was monitoring the baht, which has become stronger and more volatile, driven by a weaker US dollar. However, he added that the baht’s strength had not impacted exports much.
“We don’t want the baht to be overly volatile,” he noted. REUTERS
