Interest peaked: Thailand banks on MPK rate cut to boost economy

The Government of Thailand believes the recent reduction in the policy interest rate by the Monetary Policy Committee (MPC) will positively impact the economy.

Deputy Prime Minister and Finance Minister Pichai Chunhavichir stated that the decrease was anticipated and would help alleviate financial burdens.

Yesterday, October 16, at 9.30am, Pichai addressed the media at the Government House regarding the MPC’s decision to lower the policy interest rate by 0.25%. He emphasised that while this reduction might not immediately encourage new borrowing, it will benefit those with existing debts and boost market confidence.

The lower interest rates on government bonds are also expected to positively affect older investments.

Pichai highlighted the importance of addressing personal and SME debts, believing that increased liquidity is crucial. He urged commercial banks to inject more liquidity into the market, noting that state banks have already been proactive due to their strong financial positions.

Pichai called for cooperation from all sectors to restore the economy and increase liquidity, suggesting that the interest rate cut would partly facilitate this process. He pointed out two key factors to monitor going forward.

Interest rates

1. Interest rates cannot be considered in isolation from global economic trends, particularly those in the United States and Europe. Continuous monitoring and study are essential to adapt to these influences.

2. This year’s inflation rate is expected to stay below 1%, potentially missing the opportunity to stimulate the economy through higher inflation. However, if future inflation exceeds 1%, adjustments will be necessary. Pichai noted that previous predictions of rising inflation did not materialise, stressing the need for careful consideration of actual data.

Pichai expressed optimism that the Bank of Thailand (BOT) will closely examine these developments and continue to do so. When asked about expectations for further interest rate cuts beyond 0.25%, he mentioned that ongoing monitoring of the global economic situation is crucial, and the MPC must deliberate carefully.

On the topic of adjusting the inflation target to 2% to 3%, Pichai agreed that a higher target could aid economic improvement, as an inflation rate below 1% is insufficient. Such adjustments are typically reviewed annually, and discussions will take place as the year-end approaches, with all parties required to prepare data for consideration.

When questioned about the reasons behind BOT’s decision to lower interest rates, despite the government’s previous requests, Pichai suggested directing the query to the MPC. He expressed confidence that the situation will continue to improve, reflecting trust in the government’s policies and the prime minister’s leadership, reported KhaoSod.

“We expect everything to get better from now on,” Pichai concluded, reiterating the positive outlook for the Thai economy following the interest rate cut.