Thai PM to meet the head of the central bank following demand for an interest rate reduction

Thai PM meets central bank head amid calls for interest rate reduction, signaling a crucial economic policy discussion for growth amid challenges.

Srettha Thavisin, the prime minister of Thailand, is scheduled to meet with the governor of the central bank on Wednesday. It is anticipated that he will advocate for a reduction in interest rates and provide support for his contentious $14.3 billion aid proposal.

To revitalize a flagging economy, Srettha has been vocal about his disagreements with the Bank of Thailand (BOT) over interest rates, which are currently at a ten-year high of 2.50%. He intends to distribute 10,000 baht ($285.47) to 50 million individuals for consumption over six months.

The second-biggest economy in Southeast Asia is suffering from interest rate hikes, according to Srettha, the finance minister, while his deputy called the increases “a bit too fast, too aggressive.”

In an unusual move, the central bank announced a “policy briefing” on January 15 to share its opinions, just minutes before Srettha and Bank of Thailand (BOT) chief Sethaput Suthiwartnarueput were due to meet. The unexpected action indicates a willingness to address concerns and engage in open communication about the central bank’s monetary policy stance, even though the central bank did not provide specific details.

Srettha has previously publicly expressed her disapproval of the central bank’s monetary policy decisions, even before this meeting. Before the rate’s unexpected increase to 2.50% in September 2022, the Finance Minister had voiced his concerns. To reduce inflation, the BOT has raised interest rates by a total of 200 basis points since August 2022. At its meeting in November, the rate was maintained, though, and the next policy review is set for February 7.

The head of BOT, Sethaput, has repeatedly expressed worries about how the government’s “digital wallet” handout program might affect inflation. Furthermore, he has stressed that structural adjustments to the economy are necessary rather than depending only on fiscal stimulus. This viewpoint supports a measured approach to economic interventions, prioritizing long-term changes over band-aid solutions.

Some have criticized the government’s “digital wallet” initiative, a flagship program meant to provide financial aid. In an open letter published last year, more than 80 economists and bankers—including two former governors of central banks—voiced their concerns, stating that the plan might violate fiscal restraint. Concerns have been raised regarding the scheme’s long-term economic viability due to the government’s plan to finance it through borrowing.

This week, Srettha—who is well-known in the real estate industry—spoke up, expressing the opinion that the extremely low rate of inflation may necessitate a reduction in interest rates by the central bank. This feeling is consistent with the more general economic data; in December of last year, Thailand’s headline consumer price index (CPI) fell by 0.83 per cent from the previous year to a 34-month low. For the eighth month running, this month fell short of the central bank’s goal range of 1% to 3%.

A bond market survey that was made public on Wednesday added fuel to the rumour that the central bank may lower interest rates by as much as 50 basis points in the second half of this year. This forecast shows how the market expects monetary policy to change to address low inflation concerns and promote economic recovery.

Thailand is at a turning point in its history, with decisions about interest rates and more general economic policies having a big impact on the direction of the country’s economy as it prepares for its next policy review in February. In the months to come, how these tensions are resolved and what policies are implemented will affect investor confidence, inflationary trends, and Thailand’s overall economic recovery.

The central bank may lower rates by as much as 50 basis points in the second half of this year, according to a bond market survey that was made public on Wednesday.