Political pressure won’t force the hand of Thailand’s central bank in making its interest rate decisions independently, the country’s central bank chief told CNBC on Monday.
“The proof is in the pudding,” Bank of Thailand Governor Sethaput Suthiwartnarueput told CNBC’s “Street Signs Asia.”
Despite the “clamoring” for rate cuts, the BOT didn’t act on it “if we weren’t operating independently,” he added.
“I think that the governance framework for that is quite clear … the decisions that have been made indicate that they are taken on the basis of [what] we feel is the most appropriate for the economy, rather than considerations about trying to ease political or other pressures.”
The BOT kept the key interest rate steady at 2.50% in its latest policy meeting in April. But the central bank has been facing intense pressure from the government to lower rates, including from the country’s Prime Minister Srettha Thavisin, Reuters reported.
Lower borrowing costs tend to stimulate economic growth as it encourages businesses to invest and consumers to spend.
In the minutes for the April meeting, the monetary policy committee “expressed concern over elevated household debt and recognized the importance of debt deleveraging.”
“The high level of debt outstanding could hinder long term economic growth, especially if debt does not contribute to future income or wealth accumulation,” it said.
Balancing act
Sethaput acknowledged that it has been a “tough balancing act” for the central bank as it tries to manage weak economic recovery and monetary policy.
“If you look at the reasons that have caused the growth to be sluggish, it doesn’t have so much to do with things that are sensitive to interest rates,” he said.
The BOT chief said the current rate was “supportive of the recovery,” and is consistent with trying to get “an orderly deleveraging — getting that balancing act between not raising the debt burdens for households too much, but at the same time, not encouraging people to take on too much new debt.”
The Thai economy is projected to expand by 2.6% in 2024 and 3.0% in 2025, according to the BOT’s latest minutes, with continued support from private consumption and tourism.
While inflation pressures were subdued in the recent months, “we see inflation again, gradually picking up and entering back into our target range — which is 1% to 3%,” by the end of the year, noted Sethaput.
Structural headwinds make the outlook for the economy uncertain, the governor added, with the need to raise productivity as the country faces demographic challenges with a “shrinking labor force.”
There needs to be a “bigger focus on public investment, rather than on short-term stimulus type measures,” he said.
“I think, very importantly, a bigger emphasis upon deregulation,” including the “ease of doing business type considerations,” Sethaput noted.
