Bank of Thailand urged to slash interest rates amid economic struggle

Photo courtesy of Bank of Thailand

Pressure is mounting on the Bank of Thailand to ease the economic strain on small and medium-sized enterprises (SMEs) by slashing interest rates on commercial bank loans.

Pichai Naripthaphan, deputy chairman of the Pheu Thai Party‘s strategies and politics committee and an advisor to Prime Minister Srettha Thavisin, argued that the central bank needs to acknowledge the real-world challenges people are grappling with. He highlighted the stagnant income levels, rising expenses, and mounting debts that are forcing many to resort to high-interest informal loans.

According to the Fiscal Policy Office, Pichai revealed that Thailand’s economic growth in the last quarter of 2023 was a meagre 1.4%, with the overall expansion for the year only reaching 1.8% – a figure he classified as very low. He projected that without government intervention and fresh strategies, the economic growth for the current year will likely follow the same disappointing trajectory.

In an interview with Reuters last week, the central bank’s governor admitted that growth had underperformed expectations but denied that the economy was in crisis. Pichai, however, challenged this outlook, questioning whether a decade-long trend of underperformance could be dismissed as non-crisis.

Pichai further highlighted that since Sethaput Suthiwartnarueput assumed the role of central bank governor in 2020, the Thai economy had failed to bounce back from the negative growth experienced that year. He pointed out the negative growth of 6.1% in 2020, followed by marginal positive growth of 1.6%, 2.6%, and 1.8% in 2021, 2022, and 2023 respectively. The cumulative growth over these three years totalled 6%, which he pointed out was still less than the downturn experienced in 2020, reported Bangkok Post.

Drawing attention to the comparative economic performance of other nations, Pichai noted that even Vietnam had posted a growth rate of over 20% in 2021. He urged the central bank governor to reassess his stance if he didn’t view this as a problem.

Interest rates

Pichai suggested that the central bank should implement a reduction in the interest rates of commercial bank loans, to alleviate the burden on SMEs and entrepreneurs. He insisted that the central bank should not prioritise the profitability of commercial banks over the welfare of SMEs, pointing out that the profits of commercial banks, which exceed 220 billion baht (US$6.2 billion), account for more than 1% of GDP.

Pichai also highlighted the potential risks associated with liquidity issues in the financial and banking systems, warning that these could further destabilise the economy this year. He asked the central bank what measures were being put in place to counteract this liquidity crunch.

Finally, he urged Sethaput to ensure that the central bank’s decisions on financial policies, interest rates, and exchange rates were all directed towards the ultimate goal of propelling economic growth.

In related news, the Thai Government launched a programme to suspend and reduce debt for SMEs, aiming to tackle economic issues amid the pandemic.

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