BOT board chief expects policy interest rate to rise

Porametee Vimolsiri, chairman of the Bank of Thailand's board of directors, was speaking at the "New Chapter of Thai Economy" seminar held by Prachachart Turakij.

He said the policy rate, which has been kept at 0.5 per cent since May 20 2020, is likely to be increased. The Monetary Policy Committee will decide when to raise it.

He said the policy rate had been reduced to very low levels so it would have to rise.

Porametee told the seminar that the Thai economy is still being affected by external uncertainties, including the protracted Russia-Ukraine war and the decision by the United States to adjust its monetary policy.

Porametee said a country that still needs to achieve economic strength, like Thailand, needs to have a balance between economic stimulus measures and inflation control.

He said the economic recovery of the country is still uncertain and economic growth may be lower than the projection and the inflation rate may be higher than what is predicted.

He explained that although the BOT and the National Economic and Social Development Board expected some 5 million to 6 million foreign tourists to visit Thailand this year, it is yet to be seen whether the goal would be met.

Porametee said the post-Covid economy of Thailand would face five challenges.

First, the government would have few remaining fiscal mechanisms to help the economy because the public debt ratio has risen from 40 per cent to 58 per cent of GDP.

Since the government plans a deficit budget for fiscal 2023, the public debt ratio may rise to 67 per cent in 2026. He said the government should try to bring the public debt down to the 60 per cent level after the country’s economy has revived.

Porametee said the government’s main challenge is to earn more revenue and manage the restricted budget. The increase of the policy rate would have to be at the right time.

Second, the country's economic inequality would widen and there could be more social conflicts. Porametee explained that the Covid-19 crisis has severely affected low-income people and SMEs, causing household debt to rise as well, severely affecting vulnerable groups. As a result, the economic disparity is likely to widen and become a cause for more social division.

Third, the quality of human resources has become lower. Porametee said the Covid-19 crisis had forced students to miss onsite classes for two years, thus affecting their skills and knowledge. He added that new graduates also find it harder to get jobs thus affecting their employment in the long run.

Fourth, the Thai economic growth is still lower than stable level. He said it would take years before foreign tourists would return to the pre-Covid level of 40 million a year.

He added that the growth of the manufacturing sector was also lower than what it should be.

The fifth challenge was a good point of the Covid crisis because it prompted the country to adopt new technologies faster.

The BOT chairman added that from now on, Thailand would face the issue of an ageing society and the government would also be required to implement the Zero Carbon policy to stay competitive.

Regarding the "New Chapter of Thai Economy", Porametee said he would like to see more human security in Thai society and he would like the government to reallocate budget for new economies rather than focus on old economies.