Former Finance Minister Kittiratt Na-Ranong, likely the next Bank of Thailand Chairman, warns of economic “disaster” if interest rates aren’t cut. His attack on the central bank’s policy comes amid concerns over government interference and its independence.
The man who, in November, was reported as the government’s choice for the next Chairman of the Bank of Thailand board, on Thursday launched an all-out attack on the central bank’s failure to lower interest rates. The broadside by former Minister of Finance Kittiratt Na-Ranong came as the central bank opted to maintain interest rates at its December meeting this week. It also comes as a campaign launched by former governors and economic experts is still trying to put pressure on the government to drop his appointment. In brief, the move by the government is seen as political interference in the central bank, which is independent under Thai law.
The government’s presumed nominee for the next Bank of Thailand Chairman on Thursday appeared to launch a blistering attack on the bank’s current approach to interest rate policy. Former Minister of Finance and Stock Exchange of Thailand (SET) President Mr. Kittiratt Na-Ranong described the economy presently as a potential ‘disaster’ in the making.
“It’s the way to prevent disaster. Today, I still believe that,” he told his audience in Bangkok.
The statement comes as the government continues to lock horns with the central bank over the issue. Indeed, this tension has been on display since Pheu Thai returned to government in 2023.
Political interference in the central bank was curbed following legal changes by the military junta in 2008
Previously, Thailand’s central bank, established in 1942, had been subject to political interference. Notably, former Prime Minister Thaksin Shinawatra was instrumental in removing a previous Bank of Thailand governor.
However, the military junta in 2008 codified the independence of the central bank. In particular, it made it difficult to fire a sitting governor.
A key reason for the independence of the central bank is its role in protecting the country’s reserves. For instance, in October, they stood at $211.2 billion. Significantly, this was down from May, when they stood at $224.3 billion. Indeed, Thailand’s reserves are seen as particularly healthy. Certainly, they are crucial to protecting the country’s financial stability.
Recent comments by officials highlight challenges from global downturns and uncertainty in key economies
His comments came days after the central bank’s Monetary Policy Committee confirmed that interest rates would remain unchanged. At that time, the rate was 2.25% following a surprise reduction in October.
However, in an analysis on Wednesday after the decision, Sakkapop Phanyanukul, the Secretary of the Monetary Policy Committee (MPC), suggested leeway in 2025 to bring rates down to 1.5%.
Bank of Thailand officials emphasized the need to be cautious at this time, largely due to potential downsides in the world economy heading into 2025. There are signs of significant downturns in European economies and China. Certainly, these concerns are mirrored in lower oil prices and the rising price of gold.
Meanwhile, the United States Federal Reserve has indicated a more cautious approach going into 2025. Even though the Fed lowered rates this week by a quarter of a per cent, it signalled fewer rate cuts in 2025.
The US authorities have cut rates by 1% since September but now suggest only 50 basis points in cuts due to uncertainties expected in 2025.
Household debt and targeted economic growth remain key areas of focus for the central bank in 2025
In Thailand, the central bank’s key focus remains on household debt. Mr. Sakkapop on Wednesday suggested that the major threat to financial stability is receding.
However, the central bank will maintain its focus. The government’s “You Fight, We Help” debt restructuring plan is seen as significant. The bank will continue to rein in credit and push for a continued reduction in private-sector debt.
Meanwhile, the Monetary Policy Committee secretary predicted 2.7% growth in 2024, followed by 2.9% growth in 2025. Presently, Mr. Sakkapop said the bank sees no risk of deflation. Indeed, in the medium term, inflation should be well within the bank’s target range of 1–3%.
Bank officials noted strong growth in foreign tourism, including services and private consumption. At the same time, some sectors of the export economy are doing well.
However, other areas of manufacturing are suffering due to competition from external countries, particularly China. This is additionally linked to a reduction in credit quality among SME lenders as banks reduce their loan books.
Inflation forecasts for 2024 and 2025 are stabl but risks highlighted in external economic conditions
“Headline inflation in 2024 is expected to be 0.4% and 1.1% in 2025. Energy inflation is expected to be low in line with global crude oil prices. Core inflation is expected to be 0.6% in 2024 and 1.0% in 2025, with an upward trend in line with economic trends and cost pass-through in the food category.
The medium-term inflation forecast is still within the target range, with no signs of deflationary risk yet. The prices of products that have increased represent about three-quarters of the total,” said Mr. Sakkapop.
Significantly, the risk of a financial system crisis due to household debt is receding. And that remains the central bank’s top priority.
However, Mr. Sakkapop maintained that there is scope to reduce interest rates in 2025, particularly if exports and economic growth continue apace.
“The possibility of interest rates being reduced to 1.5% still needs to be monitored and assessed in terms of the economy, potential, and neutral interest rates. If there is a large change, it may result in a review of the interest rate cut. As for the overall stability of the financial system, in the long term, we are concerned about household debt, but we see a decrease, so the long-term risk to the financial system is unlikely to be an issue and is in the reduced zone. However, the short-term risk from tight credit and various financial conditions is partly helped by the ‘You Fight, We Help’ project, including the recent interest rate cut, so the current risk to the financial system has not increased,” said Mr. Sakkapop.
Analysts suggest further interest rate cuts in 2025, amid concerns over a downturn in the global economy
Following last week’s decision, all key economic analysts in Bangkok suggested a further 25 basis point cut in February 2025. In brief, while fears of Donald Trump’s second presidency may have receded, there is concern that Thailand may be among a group of countries subjected to increased tariff charges.
For instance, Krungsri Global Markets and Research, part of the Bank of Ayudhya (Krungsri) group, and the Economic Intelligence Centre (EIC) of Siam Commercial Bank maintained that the bank was simply being cautious, especially due to nervousness about world developments in 2025.
“This decision will allow the MPC to assess the effects of October’s rate cut and the government’s stimulus measures while preserving the policy space for future adjustments. However, we expect the MPC to lower the rate to 2% in February 2025,” Krungsri opined.
A similar analysis and consensus were reached by K-Research or Kasikorn Research. Notably, this research house saw overall inflation in 2025 still below the central bank’s target range.
Government’s hesitation over Bank of Thailand chairman appointment amid concerns about independence
Previously, Minister of Finance Pichai Chunhavajira had renewed his call for the Bank of Thailand to cut interest rates. Speaking with reporters, he said he had already shared sensitive data with the central bank to support his ministry’s conclusion.
When asked about reports that Mr. Kittiratt Na-Ranong would be the next Bank of Thailand chairman, he did not confirm this. However, he did say that candidates had been recommended to the ministry by a panel.
At that time, the ministry was in the process of reviewing the qualifications of those being considered. Nonetheless, reports in November strongly suggested that the government had decided to appoint Mr. Kittiratt.
While the Bank of Thailand Chairman has no power over interest rate policy, he or she is influential in the appointment of the Monetary Policy Committee. This includes the governor of the central bank, two deputy governors, and four independent experts.
Ministry’s delay in appointing Kittiratt amid public concerns and a fragile politcal balance of power
Nonetheless, Mr. Kittiratt’s appointment has been slowed down. It is understood that the government is nervous about it, especially given high-profile campaigns by former governors and economic experts. These activists are calling for the independence of the central bank to be maintained.
These concerns are heightened given that the current Governor, Sethaput Suthiwartnarueput’s term, expires in September 2025.
Mr. Sethaput and previous governors are seen as having performed their roles very well. Indeed, they are regarded as crucial to the high regard Thailand’s financial system is held in by foreign observers. In particular, by international rating agencies.
Central bank’s policy and strategic efforts aim to strengthen Thailand’s banking system and reduce risks
Undoubtedly, the policy of Thailand’s central bank has been to shore up the strength and profitability of the country’s banking system.
For instance, the central bank will see the concessions it has made to allow the government’s flagship debt restructuring program to progress as a major concession.
This allowed banks to avoid some proportion of levy payments to rescue fund linked with the 1997 crisis. In addition, the bank also granted concessions for the retail banking sector under the debt relief program. At length, this will provide borrowers relief over a three-year period. Selected bad debts will be written off with just 10% repayment, and small debts under ฿5,000 will be written off entirely.
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Of course, the program will help improve the credit quality of banks in the short term. Nonetheless, it is a prudent reform aimed at reducing household debt.
In the meantime, the measures will help free up disposable income for hard-pressed Thai families, which may boost the economy.
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