FTI discusses impacts of high interest rates on the business sector

These issues are expected to be discussed at the joint private sector meeting of three institutions — the Bank of Thailand (BOT), the Thai Chamber of Commerce, and the Thai Bankers' Association on January 10. 

The interest rate issue needs to be viewed from two perspectives. From the standpoint of the Bank of Thailand (BOT) or the Monetary Policy Committee (MPC), which is responsible for overseeing the interest rate that currently stands at 2.5%, there might be reasons for an increase, the main one of which is the US government's quantitative easing (QE) measures, which inject money into the system by printing banknotes.

Moreover, there are also various economic stimulus measures resulting in significant spending by US citizens, despite some not actively working. This has led to high inflation, with which Thailand also has to contend.

Addressing the profits of financial institutions which have exceeded 220 billion baht, the FTI chairman noted that this is derived from the interest rates on loans, which generate relatively high income in tandem with the interest rates on deposits, which constitute comparatively low costs.

The private sector is looking to lower financial costs in 2024 and hopes that Thailand might witness a declining interest rate trend given that the US Federal Reserve has explicitly stated the end of the rising interest rate era and hinted at three reductions this year. However, the Fed did not specify the timing, as US inflation is currently over 3%, a full percentage point higher than its target of 2%. This will probably mean a delayed decrease in interest rates.

"I believe that the BOT will not reduce the interest rates before the US does so because with previous adjustments, the BOT has tended to observe before making changes. The BOT or relevant parties will likely wait and assess the situation once the US makes a move," Kriengkrai said.

He reiterated that in 2024, entrepreneurs are seeking reduced costs including fuel prices but anticipate no significant impact on import prices, even with the Israel-Hamas conflict and concerns about the Red Sea. If cost issues do not arise, it is believed the situation will remain manageable.

However, if there is a war in the region, costs will increase, especially with interest rates at the current level. Reduced interest rates would ease the burden, particularly for borrowers. Additionally, Thailand faces the issue of at least one minimum wage increase this year, though the extent of this remains unknown, Kriengkrai added.

He also noted the that current electricity cost at 3.99 baht per unit will increase, although it might not surpass 4.20 baht per unit. “While these issues might seem minor individually, collectively, they will undoubtedly escalate business operators' costs,” he said.