Bank of Thailand faces political pressure to cut interest rates

The Bank of Thailand (BoT) is under increased political tension to reduce interest rates, with the majority of analysts predicting that the monetary authority will withstand requests for unexpected easing to bolster the economy. This escalating discord between Prime Minister Srettha Thavisin and the central bank concerning monetary policy direction is predicted to damage investor confidence, though the likelihood of Sethaput Suthiwartnarueput stepping down as BoT governor remains low, as reported by analysts from Barclays Bank Plc and Nomura Holdings Inc.

PM Srettha, who has been in conflict with the central bank about the strategy to rejuvenate Southeast Asia’s second-largest economy since his rise to power in August, intensified tensions on Monday with a late-night demand for an emergency monetary policy review to decrease borrowing costs. This comes after data revealed that the economic output for the fourth quarter was weaker than anticipated.

The BoT’s monetary policy committee, which maintained rates at a 10-year high of 2.5% in a divided decision earlier this month, is due to reconvene on April 10. The last time the BoT convened a special rate meeting was during the early stages of the pandemic in 2020, said Shreya Sodhani, an analyst at Barclays Bank.

“We anticipate that the BoT will reduce rates at its next meeting in April due to the significant deceleration in growth.”

Sodhani does not foresee the bank conducting an unscheduled meeting.

“Policymakers maintained rates in the face of the PM advocating for reductions at their previous meeting, demonstrating that it is improbable that they alter views now.”

Euben Paracuelles of Nomura also doubts the BoT’s susceptibility to political pressure, though he sees a growing likelihood of an easing in April, with a total of 100 basis points reduction this year. Paracuelles suggests that the BoT faces a dilemma, caught between the need to react to weak economic data and the need to hold its ground in the face of the PM’s intensifying push for rate cuts, Lavanya Venkateswaran, a senior ASEAN economist at Oversea-Chinese Banking Corp in Singapore.

“The best outcome is that both parties continue to express their views, even if publicly, but permit data and time to shape the narrative.”

Interest rates

The ramifications of these disagreements are already evident in Thailand’s equity and bond markets, with the uncertainty that policy could shift in either direction sparking investor pullback.

To date, investors have withdrawn US$1.5 billion from Thai stocks and bonds this year, the highest in Southeast Asia, driving the baht to a three-month low against the dollar, reported Bangkok Post.