BoT may adjust policy due to economic changes and challenges

The Bank of Thailand (BoT) may revise its monetary policy if economic changes in the landscape and structural challenges significantly lower its long-term potential growth, disclosed BoT Deputy Governor Alisara Mahasandana. This follows governmental pressure on the central bank to decrease interest rates.

Alisara, speaking from the International Monetary Fund (IMF) and World Bank Spring Meetings in Washington, highlighted that while the bank’s Monetary Policy Committee is receptive to all input, it needs to balance immediate and longer-term economic elements when establishing rates.

This statement comes in response to Prime Minister Srettha Thavisin’s open challenge to the central bank’s monetary policy.

PM Srettha, also the Finance Minister, expressed multiple times that rate cuts would assist the economy in managing high household debt and China’s economic deceleration.

Alisara, a member of the Monetary Policy Committee, reckons the monetary policy may be recalibrated if there is a change in the growth and inflation outlook, or if structural hurdles lower our long-term potential growth.”

On April 10, the central bank maintained the key interest rate at 2.50%, the highest it has been in over ten years. The next review is scheduled for June 12. The BoT forecasts that Southeast Asia’s second-largest economy will grow 2.6% this year and 3.0% in 2025, an improvement from last year’s 1.9%.

Nevertheless, uncertainties persist. While higher private consumption and tourism are anticipated to bolster growth, the recovery of its exports remains uncertain.

Alisara mentioned that the annual headline inflation is projected to re-enter the Bank’s target range of 1-3% by year-end. Though energy subsidies have kept consumer prices below the levels of the previous year for six consecutive months until March, a rise in prices is predicted for May.

Alisara clarified that the negative headline inflation “does not reflect weak demand, it’s not deflation.” She also pointed out that the baht is predicted to exhibit volatility, influenced predominantly by external factors, notably the strength of the dollar.

The baht has depreciated 7.6% against the US dollar this year, making it Asia’s second-worst-performing currency after the yen.

Despite the baht’s low yield lagging behind other regional currencies, Alisara noted that domestic factors are expected to be more supportive than last year, citing improved economic activity and Thailand’s current account surplus.