Prime Minister Srettha Thavisin takes a swipe at the Bank of Thailand’s 2.5% interest rate, citing potential harm to economic recovery. As Thailand begins to confront challenges, including sky-high household debt, Srettha calls for a borrowing rate aligned with economic trends. 

Prime Minister Srettha Thavisin struck a discordant note on Wednesday as he appeared to take aim at the Bank of Thailand over its interest rate policy. The PM was presenting the government’s 2024 budget to parliament. It comes as the economy begins a new year with projected 3.2% growth while final figures for 2023 are due in February. This is expected to show disappointing growth of 2.5%. At the same time, the country’s cost of borrowing at base rate is significantly lower than in the United States and regional peers.

Prime Minister Srettha Thavisin arrived in parliament on Wednesday and addressed the House of Representatives. The PM appeared to take a swipe at the Bank of Thailand and called for an interest rate policy more in line with the current ‘economic trends’. The budget presented for 2024 revealed a higher deficit, up by ฿100 billion.

As the Bank of Thailand prepares for its first rate-setting meeting of the year on February 7, Prime Minister Srettha Thavisin has again been sending signals.

On Wednesday, he emphasised the importance of considering the economic risks the country faces, particularly the fragility of its recovery.

At length, most analysts including the Thai Chamber of Commerce are now predicting only 3.2% growth for the year.

He was speaking to parliament at the onset of the budget debate. 

PM warns the current 2.5% base borrowing rate is too high. He called for a rate ‘in line with the economic trends’ as he addressed the House of Representatives

Prime Minister Srettha expressed concern at the decade-high borrowing costs, currently standing at 2.5%. The PM warned it might adversely impact the nation’s economic revival and the well-being of its citizens.

‘The monetary policy going forward should be in line with the economic trend, tighter financial conditions, and an additional boost from government policies,’ Mr Srettha declared. He urged the Bank of Thailand to be cautious in its decision-making process.

Nonetheless, the interest rate in Thailand at 2.5% is currently less than half the level of US interest rates. Indeed there is pressure on the central bank to raise it. At the same time, the Monetary Policy Committee is expected to keep borrowing costs steady.

Bench rate in Thailand less than half the US rate which is at 5.5-5.75% although there are now clear signs this rate will fall in the course of 2024

Thailand’s benchmark borrowing rate is not only well below the US level but also that of regional players.

The US rate currently runs at 5.5 – 5.75%. Significantly, the base interest rate in Malaysia is 3% while in Indonesia it is 6%.

This puts pressure on banks trying to attract deposits. It comes as the backdrop to a year which will see a tightening of credit conditions for new loans in Thailand. The central bank is implementing strict new lending criteria.

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In short, this is part of its plan to improve loan quality and address Thailand’s chronic household debt issue. It is currently running at 90% of GDP.

There may be some good news for the PM however as US interest rates are poised to fall back in 2024. Inflation in the world’s largest economy is now thought to be under control.

Srettha suggests weaker than anticipated economic growth justifies some slack in interest rate policy

The Bank of Thailand, at its last meeting, opted to maintain its benchmark interest rate at 2.5%.

However, the premier highlighted that the central bank had raised its benchmark repurchase rate by a total of 200 basis points over a 13-month tightening campaign based on the assumption of a ‘good’ economic recovery. 

Despite these efforts, the persistently low inflation rate, projected to fall for a third consecutive month in December, serves as a worrisome reflection of a slowing domestic economy, according to Mr Srettha.

The premier acknowledged the challenges facing Southeast Asia’s second-largest economy. This includes the impact of El Nino, high household debt, slowing global trade and geopolitical tensions.

Srettha in parliament pushes for an expansionary economic policy with economic growth driven by the government. Plans to spend more with a higher deficit

In light of these challenges, he stressed the need for a loosening of monetary policy.

He accepted this might include tighter financial conditions. At the same time, he highlighted the essential role of government policies in driving the economy.

‘The ฿3.48-trillion budget for the 2024 fiscal year to Sept 30 will entail a deficit of ฿693 billion, an increase of ฿100 billion from the deficit projected by the previous government in a preliminary draft,’ Mr Srettha revealed, underlining that incurring a budget deficit will be instrumental in supporting the economy during these turbulent times.

Steady as she goes growth and economic stability driven by a growth in US exports is all good news

Despite concerns from some central bankers and economists, the Pheu Thai Party has been advocating an expansionary economic programme. 

PM still hopes that Digital Wallet can proceed but his speech showed he has tempered his expectations from Pheu Thai’s initial insistence on 5% growth

It still calls for a bold ฿500 billion digital cash handout, aiming to stimulate domestic economic activity.

The proposed initiative has sparked controversy, with varying opinions on its desirability in view of the economic challenges.

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On Wednesday, Srettha accepted that the plan had been deferred.

It was first planned to be rolled out in February/March 2024. At this time, legal clarification is sought on whether a government loan can be used to fund the stimulus measure.

Target for 2024 is for growth between 2.7% and 3.7%

In the meantime, the premier emphasised other initiatives such as boosting foreign tourism efforts to drive the economy.

Significantly, political soothsayers warn that pushing the initiative could trigger a political crisis for Srettha and his government.

The PM has previously expressed his ambition to accelerate annual growth to 5% during his term. On Wednesday, he tempered these expectations. 

He disclosed that gross domestic product (GDP) expansion this year is expected to range between 2.7% and 3.7%. This forecast represents a marginal improvement from the estimated 2.5% growth in 2023.

Bank of Thailand’s Monetary Policy Committee on February 7th expected to keep interest rate levels unchanged as it tries to navigate a fragile recovery

The Bank of Thailand’s Monetary Policy Committee meeting decision on February 7th on the policy rate is now in focus. 

It will be pivotal in shaping the economic landscape for the year ahead. The premier’s call for a cautious approach underscores the delicate nature of the country’s recovery.

In short, Thailand’s over-borrowed private sector is already reeling. The fact that interest rates are less than half the world’s norm illustrates this significant weakness.

The PM emphasised the need for a well-balanced and nuanced monetary policy to navigate the challenges faced by Thailand’s economy.

As the government is set to report the full-year 2023 GDP on February 19, all eyes will be on the central bank’s decision.

Afterwards, the effectiveness of the proposed stimulus measures in mitigating the economic headwinds will be tested.

Bank’s core mission is to preserve stability

The coming weeks will reveal the extent to which the Bank of Thailand heeds the prime minister’s advice.

Basically, the bank is independent. It has a mission to keep inflation in check while looking towards growth to preserve financial stability.

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We can expect it to keep the status quo for now. Especially in view of its planned credit squeeze which began on January 1 and ramps up further in April.

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Further reading:

Thai economy is stable but is being strangled by personal debt. Fixing it could see pain before any gain

Steady as she goes growth and economic stability driven by a growth in US exports is all good news

Economy at crossroads: World Bank calls for structural reform to avert two decades of low growth

Former Deputy PM warns Srettha that if he does not listen, he may spark a real economic crisis in Thailand

Fragile, weak economy sees central bank holding interest rates and reducing 2023 growth to 2.4%

Srettha’s crisis is not just an economic one, it is a ‘3D debt crisis’ that is strangling GDP growth

Zombie Thai firms holding back economic growth as they struggle just to pay interest on bank debt

Incoherent government economic policy clashes with Bank of Thailand’s efforts to rein in debt

Srettha outlines Digital Wallet as his government begins to flounder with a faltering economy and confusion

Economy is in troubled waters with fears for both exports and foreign tourism as 2023 winds down

Thailand faces an economic future of low growth despite Srettha’s plans because of a darker world