The government and the Bank of Thailand remain at odds. Top bank officials claim the economy is on track for quality growth. However, Deputy Finance Minister Paophum Rojanasakul argues that the central bank’s 1% inflation target is too low and links higher inflation with increased economic performance.

The government continues to be at odds with the Bank of Thailand. On Wednesday, top bank officials suggested that the kingdom’s economy was settling in for ‘quality’ growth. Key officials explained the details underlying the economy. In short, it continues to grow despite impeding structural factors such as household debt and market changes within the country’s manufacturing sector. However, on Thursday, Deputy Minister of Finance Paophum Rojanasakul insisted that the central bank revise the kingdom’s inflation targets. The Deputy Minister said 1% inflation was too low and linked rising prices with stronger economic growth.

Deputy Minister of Finance Paophum Rojanasakul on Thursday called for a policy to try to raise inflation. In turn, he stated it will help spur on growth rates in the economy. It comes with the government and the Bank of Thailand again increasingly at loggerheads over economic direction. (Source: Ministry of Finance)

The Thai government continues to be at loggerheads with the country’s central bank. Certainly, this week, the Bank of Thailand, in briefings for reporters by key officials, particularly during the bank’s second Monetary Policy Forum, expressed the view that the economy was beginning to find its feet.

Indeed, Mr Piti Disyatat, Assistant Governor, expressed a belief that growth from the third quarter will be more confident. He described it as quality growth.

Deputy Minister of Finance suggests that higher inflation will assist more rapid growth of the economy and calls for a raise in the policy targeted range

At the same time, the bank described its current policy rate as both robust and suitable to current conditions.

Nevertheless, on Thursday, Deputy Finance Minister Mr Paophum Rojanasakul said there was a need to review the current inflation target range. In particular, the minister suggested that 1% inflation was too low.

At this time, the target range agreed between the Ministry of Finance and Bank of Thailand in 2020 is 1-3%.

In turn, he said that talks with the central bank must now take place. His comments come as inflation in Thailand has begun to rise. Previously, inflation was negative but entered positive territory in April at 0.19%. Afterwards, in May, it shot up to 1.54%.

Presently, the bank suggests that the headline inflation rate in the third quarter will continue to be below the target. However, it will end the fourth quarter within it.

Ministers continue to demand lower interest rates. However, the central bank consistently refutes that view saying the 2.5% rate is ‘robust’ and ‘suitable’

Nevertheless, Minister Paophum on Thursday suggested that lifting inflation would at the same time help lift economic growth.

In the meantime, that would also provide the scope to justify lower interest rates.

Significantly, Thailand, at this time, has one of the lowest interest rate regimes in the world except for Switzerland. For example, Malaysia has an interest rate of 3%, Indonesia’s rate is 6.25%, while Singapore’s latest interest rate is 3.42%. In contrast, the rate in the United States is 5.25-5.5%.

Nonetheless, the Bank of Thailand has continued to resist the government’s demands. At its June meeting, the Monetary Policy Committee voted 6-1 to hold the line. The next review is on August 21st.

On Wednesday, a top Bank of Thailand official pointed out that interest rates have very little impact on countering household debt. Surat Thaenboon, a senior director with the Bank of Thailand’s financial policy group, said:

‘We don’t consider monetary policy as a tool for solving household debt, and don’t set policy rates to try and lower the household debt ratio,’ he told reporters.

Bank executives explained that problems in key sectors were simply market forces as uncompetitive manufacturing firms were being weeded out

The bank’s executives on Wednesday explained that while sectors of Thailand’s economy were experiencing severe problems, others were expanding. In short, the market was causing a fallout of uncompetitive firms.

These views may turn out to be dangerous if based on false assumptions or incomplete data. Certainly, Thailand’s manufacturing sector is reeling from China’s dumping policy.

In summary, ramped-up Chinese exports cannot be sold on tariff-restricted Western markets including the European Union and United States. Consequently, they are dumped in Thailand.

The fear is whole sectors may be wiped out, particularly Thailand’s steel production industry.

Bank of Thailand Associate Governor gave an overview of Thailand’s employment profile within the economy to explain the current dynamics in GDP performance

Mr Piti gave an overview of Thailand’s employment profile. He suggested that 15% of workers are in the manufacturing sector. Certainly, this continued to decline in the first quarter. The Manufacturing Production Index (MPI) for the period was down by 3%.

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For instance, steel production capacity was at a record low of only 28%. It came as Chinese manufacturers were able to sell on the market at lower prices.

The same trends can also be seen in the automotive industry. The decline in auto manufacturing the Bank of Thailand attributed to the transition to EV cars.

However, at the same time, it noted a problem in the Thai market due to price competition.

30% of Thailand’s workforce is still employed in the country’s agricultural sector. 15% are linked to the challenged manufacturing sector. 20%  in tourism 

In the meantime, 30% of workers in Thailand are in the agricultural sector, 20% are employed in tourism, and an additional 20% are in the service sector.

At the same time, new factories were opening as the country’s manufacturing base adapts to market conditions.

The Bank of Thailand is predicting 2.6% growth for the Thai economy in 2024. 

Afterwards, in 2025, Thailand will cruise to 3% growth. However, already, Minister of Finance Pichai Chunhavajira has set a target of 3% for this year. His aims include boosting budget disbursements and raising the number of foreign tourist arrivals from 36 to 37 million.

At the same time, the Bank of Thailand is warning that economic growth rates in the third and fourth quarters may only be 0.6-0.7% because of a higher base last year.

Inequality is a key impediment to robust growth

Mr Piti is also warning that in addition to household debt, which the bank is tackling, another key impediment to growth in Thailand is inequality.

In short, an unequal distribution of revenue within the economy. This has been exposed by its performance in the first quarter of 2024.

Despite this, private consumption was up 6.9% in the first quarter. In short, Thai consumers, even though blocked from big-ticket purchases by a credit crunch, splurged.

This was driven by a more buoyant tourism industry. At the same time, exports were down 1% while investment was also down 4.6%.

Meanwhile, the government remains wedded to its controversial ฿500 billion Digital Wallet plan. This, in recent weeks, has again been opposed by Bank of Thailand Governor Sethaput Suthiwartnarueput. 

Previously, Governor Sethaput has called for the scheme to be limited to welfare card users or 15 million people. This would be approximately 30% of the current universal giveaway.

Digital Wallet Scheme still on the government’s economic agenda. This is despite warnings from government agencies that the scheme represents a legal risk

The government and Prime Minister Srettha Thavisin have been repeatedly warned of the legal perils inherent in the plan. Yet they still insist it will proceed in Quarter 4.

Most analysts at this time are projecting on the basis that the scheme will eventually not materialise.

The government’s latest proposal came on Wednesday from Deputy Minister of Finance Julapun Amornvivat.

In brief, he wants to launch a government investment fund. This would be based on the Vayupak Fund launched in 2003.

Certainly, the reason for this fund is to prop up share confidence within the economy. The Stock Exchange of Thailand (SET) index has fallen 11.5% in the last year. This year alone the index is down by 7.5%.

New stimulus scheme planned to boost the country’s failing stock exchange based on a similar one launched in 2003. ฿500 billion plan in two separate funds

The plan is to raise a ฿150 billion fund to invest in Thai shares. Investors would be guaranteed a return of 3% by the government in any event.

The second proposal being considered by Mr Julapun is a ฿350 billion fund which would purchase Thai shares. This would be a government-owned fund with exposure shared by the Finance Ministry and state-owned enterprises.

In addition, investors in Thai ESG (Environmental, Social and Governance) funds or shares will receive tax breaks on a revised ceiling. This will be increased from ฿100,000 to ฿300,000. At the same time, the required period to hold the shares to qualify will be reduced from eight to five years.

Stock Exchange of Thailand (SET) has fallen by 11.51% in the last year and 7.51% so far this year. This is while the Malaysian index soared by 14.16%

These schemes have been promoted by Finance Minister Mr Pichai Chunhavajira who was previously the Chairman of the Stock Exchange of Thailand (SET) before taking up office.

Mr Pichai is also a close associate, financial advisor, and confidant of former PM Thaksin Shinawatra.

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Significantly, while the Stock Exchange of Thailand (SET) is in freefall, driven not least by the Stark corporate fraud scandal, the Malaysia Stock Exchange (Bursa Malaysia) is up by 14.16% for the last year and 8.96% for the last 6 months.

The wider concern is Thailand’s embedded economic links with China. Undoubtedly, the Thai stock market appears to be following the course of Chinese bourses.

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