Bank of Thailand withstands political pressure, keeps rate unchanged at 2.5%
The Bank of Thailand has decided to keep its benchmark interest rate unchanged at 2.50%, despite Prime Minister Srettha Thavisin's repeated calls for a rate cut to boost the economy.
The Bank of Thailand has decided to keep its key interest rate unchanged at 2.5%, despite pressure from the Prime Minister to cut rates in order to boost the economy.
Key Takeaways
- The Bank of Thailand resisted pressure from the prime minister to cut interest rates in order to preserve macro-financial stability and sustainable growth.
- Despite the prime minister’s push for a rate cut, the central bank kept the interest rate unchanged at 2.5%, with two committee members voting to cut it to 2.25%.
- The central bank’s decision was influenced by concerns about the external sector’s slowdown, robust private consumption growth, and the need to maintain financial system stability, with expectations of potential rate cuts in the second half of the year.
The bank cited reasons such as moderating external sector momentum and robust private consumption growth for its decision. While the decision was in line with expectations, it was not unanimous, with two committee members voting to cut the rate.
The Thai economy is projected to slow in 2024 from exports and manufacturing activity amid softening global demand and moderating growth in China. Structural headwinds are restraining merchandise exports and tourism more than expected.
Monetary Policy Committee’s Decision 1/2024 (bot.or.th)
The decision was widely expected, with 27 economists predicting no change in the rate, but the central bank expressed readiness to adjust rates as needed, citing slower-than-expected economic growth and ongoing concerns about inflation.
The Prime Minister has been vocal about the high interest rates being a burden on the economy, but the central bank has highlighted the importance of maintaining macro-financial stability and not just focusing on inflation.
The current policy interest rate is consistent with preserving macro-financial stability, a key foundation for sustainable growth in the longer term. Most members thus voted to maintain the policy rate at this meeting.
Monetary Policy Committee’s Decision 1/2024 (bot.or.th)
The prime minister advocated for a rate cut to stimulate domestic demand, but the central bank governor attributed the decline in consumer prices to state subsidies for fuel and electricity. In January, Thailand’s annual inflation rate remained negative for the fourth consecutive month at minus 1.1%, marking the lowest level in 35 months. This was primarily attributed to the government’s energy subsidy program, as reported by the Commerce Ministry’s data.
The Monetary Policy Committee (MPC) started raising interest rates in August 2022, gradually increasing them by 0.25 percentage points on eight occasions, resulting in the borrowing cost reaching a 10-year peak of 2.5% in September 2023.
The bank also revised down Thailand’s 2024 economic growth forecast to between 2.5% and 3.0% from 3.2%, due to factors such as falling exports and manufacturing activity. Analysts expect the central bank to consider rate cuts in the second half of the year if GDP falls below target rates. The next MPC meeting is set to take place on April 10th.
The economy is estimated to have expanded by 2.5% to 3% last year, with official GDP figures set to be released on Feb 19.
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