Central bank stands firm against govt calls to cut policy interest rate

Piti Disayatat, assistant governor overseeing financial policies of the Bank of Thailand (BOT), said the MPC would stick to its scheduled meeting on February 7 and would not entertain a special session.

He was responding to Prime Minister Srettha Thavisin’s calls for the BOT to consider lowering the policy interest rate, currently set at 2.5% per annum. Srettha called for the policy rate to be reduced because the rate of inflation has been negative for three months now.

The business sector echoed these sentiments, advocating for a rate cut and urging the central bank to intervene in commercial banks’ practices, particularly amid reports forecasting profits of around 220 billion baht for commercial banks in 2023. These profits mostly stem from the wide spread between deposit and loan rates.

Piti, however, said it would be risky for the central bank to lower policy interest rate, adding that a prudent approach would be needed to avoid potential damage to the economy.

He said the BOT, like other central banks, would consider comprehensive factors, beyond short-term situations, to formulate policies conducive to economic expansion.

Reports suggest ongoing disagreements between BOT and Srettha, who also serves as finance minister, over macroeconomic policies. While the BOT leans towards maintaining or increasing the policy rate to prevent economic overheating, the PM advocates lower interest rates to stimulate further economic growth.

Piti said the negative inflation rate over the past three months does not reflect a poor economy. Instead, he said, it can be attributed to the government’s temporary measures aimed at controlling and reducing oil and energy prices.

“Other goods’ prices have not dropped, so the negative inflation rate does not reflect poor buying power. The inflation is still within the BOT’s controlled range,” Piti said. “This is why the BOT has not reduced the policy rate.”

He said he expects the negative inflation rate to persist until February before gradually climbing to reach BOT’s target of 1-2% by yearend.

He added that the BOT and Finance Ministry have been in close consultation on the economy.

“I hereby affirm that the BOT did not make a wrong monetary decision,” Piti said.

Suwannee Jatsadasak, assistant BOT governor in charge of financial institutions, said the central bank is mindful of vulnerable groups and has advised commercial banks to exercise caution before raising loan interest rates for small-time borrowers. Additionally, commercial banks have been told to consider increasing their deposit interest rates.