TUESDAY, April 16, 2024

Cutting interest rate not the solution to economic woes: BOT chief

Cutting interest rate not the solution to economic woes: BOT chief

The Bank of Thailand is standing firm on its monetary policy, despite coming under political pressure to hold an emergency meeting. Interest rate hawks are citing an “economy in crisis”.

Speaking in an interview to Nikkei Asia, Bank of Thailand (BOT) Governor Sethaput Suthiwartnarueput said that he was “not dogmatic” about the holding interest rate. At 2.50% per annum, the key rate is at a near-decade high.

Sethaput highlighted the reasons behind the slow GDP growth and negative headline inflation. He said Parliament’s delay in passing the fiscal budget had delayed public spending, which dropped 3% in the fourth quarter of last year, after an almost 5% drop in the third quarter.

"If we lower the rate, it's not going to make Chinese tourists spend more, or cause Chinese firms to import more petrochemicals from Thailand, or cause the government to disperse the budget more rapidly,” said Sethaput “And those are the three main factors underlying the slow growth,” he said.

The central bank has seen increased pressure from the government to cut rates. Before the Monetary Policy Committee (MPC) meeting on February 7, PM Srettha pointed to consecutive months of negative inflation as a sign for the BOT to cut rates. The BOT did not budge and held the rate at 2.5%

After GDP numbers were released on Monday by the National Economic and Social Development Council (NESDC), the PM renewed his calls for interest rate cuts. He urged the Monetary Policy Committee to hold an emergency meeting before their regular scheduled meeting in April.

Sethaput downplayed tensions between the BOT and the government, saying that they had a “professional” and “cordial” relationship.

“There’s creative tension between the government and the central bank but that is always there because we wear different hats,” said Sethaput.

The PM has said that while he would not interfere with the BOT, he would try to persuade it to sympathise with “people who are suffering”.

Sethaput told Nikkei, “They’re experiencing a lot of pain because incomes haven’t grown as rapidly as we would like, but we feel that a better way to address those issues is through targeted measures. It’s not appropriate to keep everybody on continued life support.”

Speaking on the high household debt, which has reached over 90% of GDP, Sethaput attributed it partly to the low interest rates for many years.

“It [a low interest rate] encourages people to borrow,” said Sethaput. “So lowering rates again would, I think, send the wrong signal in trying to get household debt on a more sustainable footing”.