Thailand keeps inflation target for next year with caveats
THAI authorities reached a tentative agreement to keep the inflation target at 1 to 3 per cent for next year, with the Finance Ministry pressing the central bank to take steps to spur price gains and growth in South-east Asia’s second-largest economy.
The price goal, in place since 2020, could be retained in 2025 provided the Bank of Thailand (BOT) comes up with policies to push up inflation to 2 per cent, Finance Minister Pichai Chunhavajira told reporters after a two-hour meeting with central bank governor Sethaput Suthiwartnarueput on Tuesday (Oct 29).
“The 1 to 3 per cent inflation target is acceptable but the MPC and the BOT should have measures to support growth and push inflation to appropriate level, near the midpoint at 2 per cent,” Pichai said, referring to the Monetary Policy Committee and the Bank of Thailand.
While leaving the official target unchanged may be seen as a tactical victory for the central bank, Pichai’s comments signal the government is set to pile pressure on BOT to add to its first rate cut in four years earlier this month. Sethaput has argued that a higher inflation target will unanchor market expectations and asserted that the surprise cut was not the start of an easing cycle.
Inflation has undershot the central bank’s target this year, averaging 0.2 per cent in the first nine months though the central bank expects it to return to the lower end of the band in the fourth quarter. Given that headline inflation has been below the target range for four months in a row with persistently low core prices, more easing may be in the offing, according to Standard Chartered Bank.
“We are still biased towards more policy rate cuts given the subdued growth outlook, low inflation, fiscal uncertainty, and likely calls for further cuts by both the government and private sector,” Standard Chartered economist Tim Leelahaphan said in a note.
The Finance Ministry was fine with the BOT’s proposals to leave the CPI band unchanged as long as it was able to devise policies to support growth, inflation and tackle the household debt, Pichai said. The BOT should consider foreign exchange rate management and inflation in monetary policy decisions, he added.
Pichai and his aides have repeatedly advocated for a higher goal to pave way for lower borrowing costs and to accelerate economic growth. Sethaput, however, had insisted that the current price goal had served the economy well and a bar for further easing “has to be reasonably high”.
‘Good step’
Under Thai regulations, the Finance Ministry and the BOT must agree on the price goal before it’s adopted as the official target. The target has to be approved by the Cabinet as well.
The central bank is expected to soon come up with its proposals to shore up inflation and growth, which the Finance Ministry will review before submitting the framework for Cabinet endorsement, Pichai said.
The tentative agreement on inflation is a “good step” and show both the sides have tried to strike a compromise, said Burin Adulwattana, chief economist at Kasikorn Research Center.
“We will have to see what BOT will do to meet the government’s requests and whether that will be at the cost of its credibility,” Burin said, adding the central bank has many tools other than interest rate to manage inflation and growth.
Thailand’s economy is set to expand 2.7 per cent this year and accelerate further to around 3 per cent next year, Pichai said. The country’s growth rate has lagged the pace of expansion of its neighbours – growing at an average of less than 2 per cent in the past decade – hobbled by the surge in household debt and a manufacturing sector hurting from cheap imports from China.
Prime Minister Paetongtarn Shinawatra’s administration has already passed a bigger budget and handed out about US$4 billion in cash to the so-called vulnerable group to ease the cost of living. The government will unveil a set of measures to tackle the high household debt within two weeks, Pichai said. BLOOMBERG
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