Inflate debate: BoT warns against raising inflation target

Bank of Thailand (BoT) cautioned against raising the inflation target to match the range established by the monetary authority, citing concerns that such a move may destabilise expectations and accelerate price increases. BoT Governor Sethaput Suthiwartnarueput stated that the current range is appropriate.

“The current inflation target range is appropriate for the circumstances and it has worked well in terms of keeping inflation expectations anchored.”

While speaking on adjusting the inflation target from its existing 1% to 3% range, Sethaput argued about the risks to the overall cost for the country.

“Adjusting inflation increases the risk that expectations become unanchored. If they become unanchored, there is the risk actual inflation starts to pick up, so we might see higher inflation. Once inflation expectations pick up, so do borrowing costs for the government, and the overall cost for the country could increase.”

He emphasised the suitability of the current range, especially with an upcoming review of the inflation goal scheduled to begin in August.

The Finance Ministry has been advocating for a revision of the inflation goal after consumer price gains fell short of the central bank’s target for twelve months consecutively, only returning within the intended range in May.

Despite this, the BoT has consistently rejected calls from the government for rate cuts, appropriately insisting that structural reforms, rather than lower borrowing costs, prove to be a more effective solution in stimulating economic growth in Thailand.

Last week, the Monetary Policy Committee maintained the key interest rate at 2.5% for the fourth consecutive time, with policymakers anticipating gradual increases in economic growth and inflation this year.

The committee’s decision reflected a stronger inclination towards pausing rate changes, with just one member dissenting, compared to a 5 to 2 voting split in the previous two meetings. The next rate meeting is scheduled for August 21, reported Bangkok Post.