Thai central bank sees no need for inflation target change, no easing cycle ahead

THAILAND’S current inflation target range of 1 per cent to 3 per cent has “served pretty well” and should not be changed, a deputy central bank governor told Reuters on Thursday (Oct 24), as the government pushes for a higher price target to boost economic activity.

Inflation is low and well anchored, and there is no risk of deflation, while the economy is converging to trend growth, Bank of Thailand (BOT) deputy governor Piti Disyatat said in an interview.

The BOT has been at odds for nearly a year with a government that has complained repeatedly that the central bank’s refusal until last week to cut interest rates has stymied its efforts to revive a flagging economy.

Piti said he was hoping for agreement and a constructive discussion on the inflation target for 2025 when the BOT and finance ministry meet next Tuesday.

“We are mandated to agree, the law tells us to have to agree,” he said.

Asked if the central bank was still in conflict with the government, Piti said: “We are not fighting with anyone”. Despite last week’s surprise rate cut, Finance Minister Pichai Chunhavajira still called for a higher target to lift inflation, which was just 0.61 per cent in September, with the government pushing for a review of the existing target, which has been in place since 2020.

The target is reviewed annually and agreed by the BOT and finance ministry.

Piti said lifting that would increase inflation expectations and bond yields, which would have consequences for financing for the private sector and for the government, on the outstanding debt, which was not low.

“Looking back up to now, I think it’s served pretty well,” he said of the current target. “So we don’t see any very clear reasons right now to really change it.”

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Headline inflation would be close to 1 per cent in October, he said, and above 1 per cent in November, returning to within the target.

Piti reiterated that last week’s interest rate cut, the first reduction since 2020, was a recalibration and not the start of an easing cycle.

The cut was to help ease the debt burden on borrowers without derailing the deleveraging process, he said. The central bank is aiming for a neutral stance, and policy could be adjusted if the macroeconomic picture changes materially, Piti said. Thailand’s economy, South-east Asia’s second largest, is expected to have grown 2.7 per cent to 2.8 per cent in the third quarter from a year earlier, he said, up from the second-quarter’s 2.3 per cent growth.

The BOT last week raised its 2024 GDP growth forecast to 2.7 per cent from 2.6 per cent but trimmed its 2025 growth outlook to 2.9 per cent from 3.0 per cent. Last year’s expansion of 1.9 per cent lagged regional peers.

The Thai baht was still aligned with economic fundamentals, Piti said, and the central bank would only smooth out excessive volatility in the currency.

“But for the most part, we let the market determine the level of the exchange rates,” he said.

On the US elections, Piti said “no matter who wins, we think, will increase trade tensions with China”, which would be a challenge for Thailand. There would also be more volatility in financial markets, he added. REUTERS