Thai Central Bank Governor: Current Policy Rate Neutral, No Crisis in Economy

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Thailand’s central bank governor, facing criticism from the prime minister for resisting rate cuts, emphasized that the country’s slower economic growth isn’t a crisis, contrary to government portrayals. He also asserted that quick-fix stimulus measures wouldn’t sufficiently revive the economy.

Sethaput Suthiwartnarueput, head of the Bank of Thailand, stated in an interview with Reuters preceding the central bank’s upcoming rate meeting on Feb. 7 that the current policy rate remains broadly neutral. He emphasized that Thailand isn’t in a deflationary situation, despite Prime Minister Srettha Thavisin’s calls for rate cuts from the current decade-high rate of 2.50%.

Sethaput stressed the need for structural improvements to enhance long-term growth rather than relying solely on short-term stimulus measures. He cautioned against equating slower-than-expected growth with a crisis, countering the government’s depiction of the economy.

The government, led by Srettha, labeled Thailand’s economic situation as a “crisis” and proposed a 500 billion baht ($14 billion) digital handout program to stimulate consumption. However, Sethaput argued that the recovery, though slower than anticipated, doesn’t constitute a crisis.

Despite disagreements with the government, Srettha affirmed his commitment to the digital handout scheme, aiming to distribute 10,000 baht ($281) to 50 million Thais through a mobile app. However, implementation delays may occur, with no contingency plan in place.

The central bank maintained its policy rate unchanged since November, having raised it by 200 basis points since August 2022 to control inflation. Sethaput highlighted that only Japan and Switzerland have lower policy rates than Thailand, indicating the bank’s cautious approach.

Sethaput described his recent meeting with Srettha as “cordial” and emphasized the importance of maintaining the central bank’s independence and credibility despite criticism.

Regarding economic indicators, Sethaput projected growth below 3% for the current year, down from the previous forecast of 3.2%. He attributed the sluggish recovery to challenges in tourism and exports, particularly with China, a significant trading partner and source of tourism.

Foreign tourist arrivals for 2024 are expected to fall short of the initial estimate of 34.5 million. Sethaput anticipated fourth-quarter 2023 growth to mirror the 1.5% growth in the third quarter. Official GDP data for 2023 is scheduled for release on Feb. 19.

He forecasted lower headline inflation for the year compared to earlier estimates, with negative inflation expected in the first few months, attributed to government energy subsidies. However, Sethaput reassured that negative headline inflation isn’t indicative of deflation, as consumer prices remained within the central bank’s target range of 1% to 3%.

In conclusion, while Thailand faces economic challenges, Sethaput maintains a measured approach, emphasizing the need for sustainable growth strategies over short-term fixes.