Thailand’s central bank defends policy rates amidst govt pressure

Picture courtesy of Bank of Thailand

Amidst persistent governmental pressure to decrease borrowing costs and stimulate slow-paced growth, Thailand’s central bank (BoT) defended its current policy interest rate settings today, stating they are resilient and capable of tackling future economic risks.

The bank warned that although rate reductions could alleviate debt in the short term, they could also invite long-term hazards. By maintaining a steady rate of 2.50%, the BoT believes it retains policy optionality.

The BoT acknowledged the ongoing structural challenges faced by the country’s economy, while inflation remains subdued due to governmental interventions and supply-side influences. BoT Senior Director Pranee Sutthasri expressed that the recently approved fiscal budget would boost the economy through increased government expenditure.

Loan expansion signals that overall economic conditions remain stable. However, the bank recognised the tightened credit conditions experienced by small businesses and households. It’s important to note that the BoT left its primary interest rate unaltered in its third consecutive meeting on April 10.

Finance Minister and Prime Minister Srettha Thavisin has repeatedly called on the central bank to implement a rate cut, arguing that the current level is damaging businesses, and investor confidence, and suggesting the economy is in a crisis. This depiction of the economy as being in crisis has been openly disputed by BoT Governor Sethaput Suthiwartnarueput, who contends that the economy requires structural reforms, reported Bangkok Post.

Yesterday, PM Srettha revealed that he had appealed to the country’s four largest commercial banks to slash loan interest rates for vulnerable groups and small businesses. This comes after the BoT consistently disregarded his calls to reduce the borrowing cost from a decade-high.

In related news, the BoT may revise its monetary policy if economic changes in the landscape and structural challenges significantly lower its long-term potential growth, disclosed BoT Deputy Governor Alisara Mahasandana. This follows governmental pressure on the central bank to decrease interest rates.

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