Tensions rise over BoT’s independence amidst economic recovery

The Bank of Thailand‘s independence has become a subject of contention, following statements by Pheu Thai Party leader Paetongtarn Shinawatra, which have been widely reported. This has escalated existing tensions between the central bank and the coalition government.

However, many economists and policymakers assert that the central bank’s independence is crucial and suggest alternative solutions to resolve the conflict.

Prasarn Triratvorakul, ex-governor of the central bank, opined that although the Bank of Thailand should operate with autonomy, it should not be completely isolated. Amendments to the 2008 Bank of Thailand Act ensured this operational independence whilst facilitating cooperation with governmental bodies.

This approach, he noted, has worked well as the bank collaborates with state agencies to propose annual inflation targets to the Finance Ministry.

He also highlighted the benefits of having banks under the central bank’s supervision, as it allows for better safeguarding of financial stability and effective mitigation of financial risks. This approach, he acknowledged, might be viewed as unfavourable by some, but it is the regulator’s responsibility to implement these measures for long-term financial stability.

Echoing these sentiments, Enrico Tanuwidjaja, a UOB Group Senior Vice President, noted that while the central bank should be independent, monetary and fiscal policies should be well balanced to prevent the economy from becoming unstable or overheating.

Government conflict

Nonarit Bisonyabut, a senior economic researcher at Thailand Development Research Institute, stated that the conflict between the government and the central bank is detrimental to the economy. He suggested that both parties need to communicate more openly and work together.

Meanwhile, Asia Plus Securities (ASPS) has predicted that due to Thailand’s rising inflation rate, the Monetary Policy Committee (MPC) is unlikely to cut the policy interest rate. The brokerage also explained that the government views the central bank’s monetary policies as a hindrance to economic recovery, leading to significant public debts. Hence, the government is advocating for an interest rate cut.

In response to these tensions, Prateep Tangmatitham, chief executive of Supalai, argued that while the central bank’s independence is important for economic stability, interest rates should be decreased to stimulate the economy. He also suggested this could help vulnerable groups still recovering from the pandemic’s impact.

Finally, Saravoot Yoovidhya, chief executive of TCP Group, urged Thai officials to learn from other countries about the cooperative relationship between the central bank and the government. He likened the situation to various departments within a company, each with different goals, but ultimately working together for the collective good.