Thai industry leader defends Bank of Thailand’s financial autonomy

Federation of Thai Industries (FTI) Vice Chairman Montri Mahaplerkpong voiced opposition to any proposals that would impede the Bank of Thailand‘s (BoT) authority over its financial stability management. Montri argued that the government should explore more palatable solutions to its disagreement with the BoT over policy rates, rather than attempting to curtail its power, which he sees as a contentious approach.

“The bank’s affairs should remain free from political influence, as is the case in other countries where central banks are intended to be neutral and independent.”

Montri warned that, without appropriate checks and balances, the country’s financial situation could suffer. This came after Pheu Thai leader, Paetongtarn Shinawatra, criticised the BoT for resisting government pressure to reduce interest rates. She suggested that the legislation protecting the regulator’s independence could be a hindrance to economic problem-solving.

Leaders of the Pheu Thai Party have been urging the BoT to lower the policy rate from 2.5%, a ten-year high, for several months to alleviate business financial costs. However, Montri suggested that there are other ways to assist businesses and bolster the economy.

He proposed the establishment of a new state agency responsible for overseeing the net interest rate spread of commercial banks, a crucial factor for their profitability. This spread, which is the gap between loan and deposit interest rates, negatively impacts small and medium-sized enterprises (SMEs) with good debt repayment potential, as they tend to receive loans at rates higher than banks’ deposit rates, Montri explained.

He suggested that authorities could alleviate SMEs’ liquidity issues by reducing the net rate spread. Additionally, Montri proposed that the government could strengthen the economy by regulating the reserve for banks’ bad debts, as an excessive reserve requirement puts strain on their financial expenses.

BoT argued that setting the reserve at a suitable level might encourage banks to consider reducing loan interest rates, potentially aiding the government’s economic stimulation efforts, reported Bangkok Post.