Business groups hope for further reduction in policy rate in August

The central bank’s Monetary Policy Committee (MPC) yesterday maintained the benchmark lending rate at 1.50 per cent after consecutive cuts in March and April. 

Sakchai Unchittikul, deputy secretary-general of the Federation of Thai Industries and president of the Small and Medium Industrial Institute, said the March and April cuts in the policy rate had done little for SMEs, as strict commercial banks were still demanding high interest rates of 7-10 per cent. 

He urged the government to hurry up with supporting measures that were promised to SMEs.

The Finance Ministry said in May that there would be more measures to help SMEs experiencing lack of liquidity |and access to funding, but none of |these have materialised so far. 

The plan to increase the Thai Credit Guarantee Corporation’s guarantee for SMEs from 18 per cent to 30 per cent is in limbo at the ministry, while a soft-loan policy for SMEs is also stuck in the pipeline.

Both measures have already gained approval from the Cabinet.

“The consecutive cuts [in the policy rate] only had an indirect effect on SMEs, as the cost to secure a loan is still high. But it would be good news for SMEs if the policy [rate] were lowered once again at the next meeting,” Sakchai said.

“I hear that an increase in the TCG guarantee for SMEs to 30 per cent is next to impossible at the moment, so we are waiting for other measures such as the [soft] loans with 4-per-cent interest rates, which has a budget of Bt15 billion, along with the increase of TCG’s guarantee budget by Bt50 billion in order to increase the number of SMEs that can received guarantee support from the TCG,” he added. 

Mathee Supapongse, secretary of the MPC, said the BOT still had “policy space”, and the committee members were “ready to utilise the available policy space and monetary tools” if the Thai and global economic recoveries were not as good as expected.

“The good thing about maintaining the policy interest rate [at 1.50 per cent] is that the policy space can be saved … and the MPC members are currently placing more emphasis on economic growth than financial stability,” he said after the committee’s meeting yesterday.

The MPC members believe that the economy is going to improve gradually but it is still subject to downside risk from a slower-than-expected recovery in China and other Asian economies, he said.

Nopporn Thepsithar, chairman of the Thai National Shippers Council, said it was not a surprise that the MPC had left the policy rate unchanged, since the baht has depreciated considerably from the previous rate cuts and the BOT’s measure to relax currencies move.

He said the government central bank could afford to monitor the country’s economic growth closely as well as currency movements for a while before deciding to cut the policy rate in the future, since previous measures have just been implemented.

“The economy seems to be growing steadily, while the weaker baht will support the export sector. Maintaining the policy rate should balance the export and import sectors as a too-weak baht may not be good for the economy in the long run,” Nopporn said.

He added that the baht had been weakening slightly, now close to 34 against the US dollar, which is a suitable rate to facilitate export growth without hurting the import sector.

Penthip Pornchaded, president of the Association for Promotion of Thai Small and Medium Entrepreneurs, said monetary-policy efforts should go alongside fiscal-stimulus efforts.

“The reason we asked for the [soft] loans with a 4-per-cent interest rate is that this is the rate that is compatible with our neighbours, and no SMEs would take out a loan at 10-per-cent interest if the economy is still sluggish,” she said.