Thailand gov urges bank to cut interest rate amid economic crisis

The ongoing feud between Prime Minister Srettha Thavisin and Bank of Thailand Governor Sethaput Suthiwartnarueput regarding interest rates remains the focus of media attention. Meetings of the Monetary Policy Committee (MPC) have been closely watched as elements of the government and business sector believe the central bank needs to reduce the policy rate. The MPC is set to meet six times in 2024, with the first meeting on Feb 7 concluding with the decision to keep the rate at 2.5%.

In anticipation of the next session on April 10, the government is advocating for an urgent, unscheduled meeting to reduce the rate, citing an economic crisis. This sentiment is echoed by several businesses that feel the impact of higher interest rates over the past year. Nevertheless, the central bank and some economists maintain that the process should not be hurried, as changes to the interest rate will not provide the instant solution desired by the government, reported Bangkok Post.

The MPC voted 5-2 to maintain the policy rate at the latest meeting, with two members advocating for a reduction of the rate by a quarter of a percentage point. The majority of committee members agreed that holding the policy rate at the current level would promote sustainable economic growth, which necessitates financial stability. Those in favour of maintaining the rate believe that the deceleration in economic growth is due to external and structural factors, while domestic demand continues to grow.

“An interest rate cut at this juncture would likely do little to spur economic growth given already robust domestic demand,” according to the report. The MPC also highlighted that monetary easing cannot solve structural challenges, which are the root cause of the recent growth slowdown.

Apichart Kasemkulsiri, CEO and CFO of L.P.N. Development Plc, expressed that the reduction of interest rates should be considered from multiple perspectives, and should follow the actions of the US Federal Reserve, as the residential sector is only one part of the economy.

The market expects the MPC to reduce the policy rate once or twice this year, according to Pimnara Hirankasi, chief economist of Krungsri Research. However, she forecasts the Fed may significantly cut its policy rate by 75-100 basis points this year.

Housing market

The housing market has been significantly affected by the high-interest rates of the past two years, which have risen from 0.5% to 2.5%, impacting home purchasing power by 15%. Uthai Uthaisangsuk, president of SET-listed Sansiri, stated that homebuyers who could afford a residential unit priced at 10 million baht early last year can no longer afford it following five interest rate hikes.

In the fourth quarter of last year, the impact was evident as the number of residential unit transfers nationwide dipped 12.7% year-on-year to 96,163 units, according to the Real Estate Information Center (REIC). Vichai Viratkapan, acting director-general of the REIC, said there was a decline in new residential units priced 5 million baht and lower because of the interest rate hikes, the economic slowdown and stricter mortgage rules.

Despite the pressure on the central bank to reduce the policy rate, the regulator must determine the most suitable rate for the entire economy, said the Federation of Thai Industries (FTI). Surapong Paisitpatanapong, FTI Vice-Chairman and spokesperson for the FTI’s Automotive Industry Club, stated that a suitable policy rate allows both businesses and households to benefit.

Sanan Angubolkul, Thai Chamber of Commerce Chairman, expressed that the Finance Ministry and the central bank should collaborate. He stated that the private sector believes Thailand’s economy is recovering slowly and requires support to reduce costs as well as measures to stimulate the economy.