Thailand urged to cut interest rates amid economic challenges
BoT governor candidate says Thailand's low growth and stable inflation justify reducing interest rates
Thailand needs to adopt a more assertive approach in reducing interest rates due to its challenging growth outlook and low inflation, according to Somprawin Manprasert, a candidate for the position of Bank of Thailand (BoT)’s new governor.
The benchmark interest rate, currently set at 1.75%, could be reduced by 75 to 100 basis points, Somprawin stated during an interview in Bangkok. He emphasised that the central bank should communicate its intention to enter an easing cycle to relax stringent financial conditions and ensure banks effectively pass on the rate cuts to consumers.
“The current condition of the Thai economy, with projected GDP growth of 1.5% to 1.8% this year and inflation within the target range, justifies a policy rate reduction to alleviate financial strain and prevent further economic decline.”
Somprawin’s perspective aligns with the government’s stance, which has been urging the central bank to lower rates to stimulate growth. However, this contrasts with the views of outgoing BoT Governor Sethaput Suthiwartnarueput, who believes there is limited scope for further easing following consecutive rate cuts totalling 75 basis points since October 2020.
Somprawin, who formerly served as chief economist at the Siam Commercial Bank’s Economic Intelligence Centre, is among seven candidates vying to succeed Sethaput, whose five-year term concludes on September 30. Somprawin, 50, along with other candidates, will present their vision to an independent selection panel on June 24.
His competitors include Vitai Ratanakorn, president of the state-owned Government Savings Bank; Kobsak Pootrakool, Senior Vice President of Bangkok Bank; BoT Deputy Governor Roong Mallikamas, among others. Finance Minister Pichai Chunhavajira has expressed the need for the new BoT chief to be “forward-looking with modern ideas” and to “support government policies.”
Somprawin believes that further easing would enhance growth, mitigating the burden of high debt levels on households and small and medium enterprises. Prime Minister Paetongtarn Shinawatra’s administration similarly advocates for lower rates, prioritising the reduction of household debt.
Sethaput, appointed governor by a military-backed government five years ago, frequently conflicted with the Pheu Thai Party-led administration that assumed power in 2023. He resisted calls for rate cuts and opposed proposals to raise the inflation target, but has since lowered borrowing costs in response to growth threats from US tariffs.
Somprawin, holding a master’s degree in economics and finance from the University of Warwick and a doctorate from the University of Maryland at College Park, supports maintaining robust foreign exchange reserves to prevent issues in the real sector from affecting the financial sector. He also advocates for Thailand reducing its dependence on US dollars in favour of trading in other currencies proportionate to its trade activities, reported Bangkok Post.
Somprawin acknowledged that the incoming BoT governor faces a challenging role, requiring cooperation with other policymakers to tackle the nation’s issues.
“At this moment, we need all parties to help the Thai economy,” he remarked.
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