Thai PM calls for emergency central bank meeting to cut rates

Thailand’s prime minister has asked the central bank to hold an emergency meeting to consider a rate cut, arguing that the latest data shows the economy is in a critical state.

“I would like to implore the monetary policy committee to urgently call a committee meeting to consider reducing interest without waiting for a scheduled meeting,” Srettha Thavisin posted on social media on February 19. The MPC’s next regular meeting is scheduled for April 10.

Government data released earlier that day showed Thailand’s GDP had grown 1.7% year on year during Q4 2023. This was faster than the 1.4% recorded in Q3 but weaker than most analysts’ expectations. On a quarter-to-quarter basis, the economy shrank 0.6% in December. In 2023, it expanded by 1.9%, a slower rate of growth than the 2.6% recorded in 2022.

Tensions between Thavisin and the Bank of Thailand (BoT) have escalated in recent weeks, with the prime minister repeatedly calling on the bank to cut rates.

The BoT has so far resisted these calls. At its last meeting on February 7, the monetary policy committee decided in a 5–2 vote to hold the policy rate at 2.5%, its highest level since January 2014. The bank has kept the rate unchanged for two consecutive meetings, having previously raised it by a total of 200 basis points since August 2022.

At the February meeting, the bank revised down its annual growth forecast from 3.2% to 2.5–3%, citing a slower-than-expected recovery in exports and manufacturing amid weak global demand. However, it said domestic demand continued to grow and inflation, which had stayed negative for four straight months, should gradually increase towards the bank’s target of 1–3% this year.    

In an interview with Nikkei Asia today (February 21), BoT governor Sethaput Suthiwartnarueput said cutting the policy rate would not resolve the economy’s structural and cyclical problems: “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, and those are the three main factors that underlie the slow growth.”

He said the economy was not, as Thavisin had previously claimed, “in a crisis”. “The recovery is weak, but it’s there and it’s continuing,” he said.

Suthiwartnarueput acknowledged that higher interest rates had made life harder for borrowers. However, he said a better way to address these difficulties would be through targeted measures, rather than keeping people on “continued life support”.

He said cutting rates prematurely would risk financial stability, noting that household debt has been above 90% of GDP. 

“That increase in household debt was, I think, in no small part due to the fact that interest rates have been very low for very long,” he said. “It encourages people to borrow, and so lowering rates again would, I think, send the wrong signal in terms of trying to get household debt on a more sustainable footing.”

The governor also described his relationship with the prime minister as “professional” and “cordial”.

“There is creative tension between the government and the central bank that is always there because we wear different hats,” he said. “There’s no reason that the two cannot work together – you just have to understand that we have different roles to play by law.”