Central Bank and Finance Ministry seek a unified stance on rising inflation, projected at 1.49%. However, political instability looms as Deputy Prime Minister Pichai pushes for a higher inflation target amid a fragile economy needing stability to recover.
Last Friday’s meeting between the country’s fiscal and monetary policy chiefs at the Bank of Thailand has again produced a more unified stance on the economy. Later in October, Deputy Prime Minister and Minister of Finance Pichai Chunhavajira is to pursue his demand for a higher inflation rate policy. Figures released on Monday show inflation rising and projected to be 1.49% for the final quarter. However, the finance minister wants to see a higher range, enough to facilitate a 25 basis points drop in interest rates. In the meantime, the threat of political instability in Thailand is rearing its ugly head again, just when the country needs stability and time to address the economic ills caused by past upheavals.
There are subtle signals that an agreement or understanding between the Bank of Thailand and the Ministry of Finance has been reached.
Certainly, it comes with inflation on the move upwards, together with consumer confidence, since the beginning of September. Undoubtedly, at this time, the government has seen that it must maintain stability or at least the appearance of stability as it moves to prime the economy.
That it is a faltering and damaged economy, of that there is no doubt. Nevertheless, the country should exceed growth this year in excess of 2.6%. At the same time, the government needs time to address the kingdom’s many challenges.
Baht continues to weaken while discussions at the Bank of Thailand focus on economic policy stability
The Bank of Thailand has more leeway in managing the baht following the U.S. Federal Reserve’s 50 basis points cut in September.
However, there are signs that the U.S. economy is particularly strong. Therefore, the prospects of continued interest rate cuts have diminished. All this has seen the baht slip slightly in its value relative to the U.S. dollar, coming close to the ฿34-฿35 range that Thai businesses and policymakers see as particularly ideal.
On Tuesday, the baht was quoted at ฿33.45 to the dollar, having risen in value to just ฿32.37 on September 26.
However, it continues to be volatile. In the meantime, the discussion between Ministry of Finance and Bank of Thailand officials behind closed doors last Friday at the central bank headquarters was broad and productive, according to top officials at the meeting.
One of those present was Deputy Minister of Finance Paophum Rojanasakul.
Finance Ministry and Bank of Thailand reach positive consensus but focus remains on interest rate policies
“The discussion content between the Treasury and the Bank of Thailand is positive. That means there has been a fair adjustment of perspectives and an exchange of concerns.
As for the consideration of the policy interest rate, it is within the scope of the Bank of Thailand and the MPC to use all the information discussed together to decide for the greatest benefit of the country.
In this matter, we must respect each other in order to find the best result to drive the country forward,” said Mr. Paophum. Deputy Minister of Finance Paophum Rojanasakul, at length, accepted that the Ministry of Finance and the Bank of Thailand (BOT) share a common economic vision.
He emphasised that both institutions respect the decisions of the Monetary Policy Committee (MPC), which is responsible for setting interest rates, while the Ministry of Finance refrains from exerting any undue influence. Indeed, the next policy meeting of the committee is on October 16.
It comes with a weakening baht, due to fluctuations in the United States, where economic data continues to surprise markets with its strength.
Meanwhile, Minister Paophum explained that when monetary policy takes a less aggressive stance, fiscal policy must take on a larger role in driving economic activity. This balance, he said, is a natural mechanism to ensure that the economy continues to grow at a sustainable pace.
The Ministry of Finance has already implemented several fiscal measures to support economic growth. Earlier this year, the government injected ฿140 billion into the economy through its 2024 economic stimulus package.
These funds were distributed to state welfare cardholders and individuals with disabilities, helping to stimulate demand across various sectors.
Finance Ministry pushes for higher inflation target as the central bank remains cautious on rate cuts
The wily Minister of Finance, Pichai Chunhavajira, however, is pushing for Thailand to raise its inflation rate policy.
The Finance Ministry is pushing for a higher inflation target range for 2025, moving from the current 1-3% to 1.5-3.5%. According to a ministry source, this adjustment would give the central bank more room to lower interest rates and stimulate inflation within the new framework.
The source suggested that a reduction in the policy interest rate, even by 25 basis points, would have an immediate impact on the economy by reducing the interest burden for millions of borrowers.
The BOT, however, may be reluctant to lower rates too aggressively. While inflation remains low—below the current target range—the central bank is concerned about the potential for inflationary pressures to build in the coming months.
Finance Minister to meet Bank of Thailand boss. Seeks a revised inflation and interest rate policy for growth
Exports boomed in August. Ministry of Commerce confirmed a 7% rise as the world’s economy improved
Markets rally on reports China’s politburo may move to reflate its troubled economy with stimulus
The ministry, on the other hand, argues that the current low inflation rate is a hindrance to economic recovery, especially in sectors like trade and investment. Meanwhile, Deputy Prime Minister Pichai, the Minister of Finance, is to follow up on his proposals to the central bank at the end of October.
It comes as Thailand’s inflation rate is beginning to rise. Nonetheless, figures released on Monday were below a Reuters poll projection.
Thailand’s inflation rises but remains below forecast with signs of confidence in the economy
In short, Thailand’s annual headline inflation accelerated in September. The media was briefed on Monday by Mr. Poonpong Naiyanapakorn, the Director-General of the Trade Policy and Strategy Office. In brief, he explained that the Consumer Price Index (CPI) rose 0.61% in September.
The Reuters poll projection was 0.80%, and this was up from 0.35% in August. Certainly, the Thai economy is showing signs of confidence, albeit at a lower rate than forecast.
Top officials predicted a headline inflation rate of 1.25% for October and a rate of 1.49% for the final quarter of 2024. Therefore, it would appear, according to the central bank, that the economy is producing figures within its set 1-3% inflation range.
Significantly, it must be borne in mind that Thailand’s interest rate level is substantially higher than the 2.5% published rate. That rate is nearly 300 basis points below the United States’ and far higher than the country’s regional peers.
In essence, it is the price Thailand is paying for a propped-up and stable banking system.
Bank of Thailand debates interest rate cuts while ministry is focused on stimulating GDP growth
As fiscal and monetary policymakers debated at the central bank headquarters in Phra Khanong on Friday, they exchanged truths.
A source attributed to the central bank clearly outlined what the government ministers and their officials were looking for.
“The conventional wisdom that interest rate reductions have a slower effect than fiscal policy is inaccurate. When the interest rate is reduced, 84 million loan accounts at Thai financial institutions will immediately experience a decrease in their interest burden,” the source said.
In effect, any cut in interest rates will act as a direct stimulus injection, particularly for large Thai firms. At the same time, such a move would act as a depreciation factor on the baht.
At this time, there are signs the October 16 Monetary Policy Committee is more open to an interest rate cut. However, the bank has previously acted extremely prudently.
Prime minister faces growing political unrest while her ministers manage Thailand’s fragile economy
In the meantime, on Monday, Prime Minister Paetongtarn Shinawatra was happy to let her economic ministers get on with managing the economy.
The PM was speaking after her return from an international summit in Doha. The view was shared at the Siam Kempinski Hotel Bangkok, which hosted the Bangkok Business Forum ASEAN Economic Outlook 2025.
“Currently, we have assigned ministers and heads of important economic agencies to report on the details of various projects for consideration in issuing economic measures,” Ms. Paetongtarn declared. “As for the current policy interest rate, it is a fiscal matter. Let them discuss it further, and I will not answer this question.”
It comes as the Prime Minister and her government are facing growing reports of potential political unrest ahead.
Behind the scenes on Monday and Tuesday, there was growing speculation of internal political resistance, as protest leaders and their rallying calls are again being heard.
Certainly, the government of Paetongtarn Shinawatra may face street protest rallies, such as those seen in 2006 and 2013/14. In short, it is the last thing that Thailand’s troubled economy needs.
Join the Thai News forum, follow Thai Examiner on Facebook here
Receive all our stories as they come out on Telegram here
Follow Thai Examiner here
Further reading:
US Federal Reserve rate cut piles pressure on Bank of Thailand and its governor who is holding firm
Central bank holds interest rates. Economy will grow 2.6% in 2024 as Srettha pushes home ownership
Economy unlikely to grow in first quarter as Thai manufacturing crumbles. Hard choices ahead
New Finance Minister expected in April as economic malaise deepens with downgrades in GDP growth
