Thailand eyes higher inflation target to push for rate cut

Sources familiar with the discussions have revealed that Thailand’s Finance Ministry plans to propose an increased inflation target of 1.5% to 3.5% for the coming year. This move is likely to exert additional pressure on the central bank to lower its key interest rate.

Talks between the Finance Ministry and the Bank of Thailand (BoT) to finalise this new price band are expected to take place later this month, sources said, requesting anonymity due to the sensitivity of the information. Both entities must agree on the target before it can be presented to the Cabinet for approval.

Consumer prices rose by only 0.6% in September compared to the previous year, falling short of the current inflation target of 1% to 3%. A higher inflation band would provide the government with more leverage in its ongoing efforts to advocate for lower borrowing costs.

BoT Governor Sethaput Suthiwartnarueput maintained that interest rate settings are appropriate for Thailand’s economic and financial conditions and emphasised the importance of central bank decisions being free from external interference.

Finance Minister Pichai Chunhavajira indicated yesterday that his ministry might recommend a higher inflation target to foster conditions for more rapid economic growth but did not provide specifics on the proposed new level.

A representative from the BoT did not respond to a Bloomberg request for comment yesterday. The Bangkok Post initially reported the Finance Ministry’s push for a new inflation target.

Inflation target

Director-General of the Fiscal Policy Office, Pornchai Thiraveja, mentioned that the Finance Ministry is preparing multiple options for Pichai to discuss with the central bank. These discussions are scheduled to occur after the BoT’s rate decision, which is expected on October 16. The central bank maintained its key interest rate at 2.5% since the fourth quarter of last year.

Pichai and Sethaput recently engaged in discussions on various issues, including interest rates and the strengthening of the baht, with the finance minister advocating for a rate cut. Following the meeting, the finance minister stated that the rate panel should have reasons if it decides against lowering borrowing costs.

The new government under Prime Minister Paetongtarn Shinawatra is also seeking greater influence over the central bank by supporting Kittiratt Na-Ranong, a critic of the BoT’s stringent monetary policy and a loyalist to the ruling party, as the new BoT chairman. A decision on the new chairman is expected later this week, reported Bangkok Post.

Although the BoT chairman does not have the authority to dictate monetary policy, the role includes evaluating the central bank governor’s performance and influencing the selection of external experts for the seven-member rate panel led by Sethaput, who is scheduled to retire in September next year.