Thai central bank chief warns against inflation target reset
THAILAND’S central bank governor warned that any move to raise the monetary authority’s inflation target may unanchor expectations and result in quickening price gains, which carries risks for economic growth.
“The current inflation target range is appropriate for the circumstances and it has worked well,” governor Sethaput Suthiwartnarueput said on Tuesday (Jun 18).
Raising the inflation target from the current 1 to 3 per cent range “increases the risk that expectations become unanchored”, he added.
After Thailand posted six straight months of negative inflation to March, Finance Minister Pichai Chunhavajira last month mooted the possibility of raising the target band – a move that market watchers said may be a strategy to nudge the monetary authority to lower borrowing costs.
Analysts, including Bloomberg Economics’ Tamara Henderson, said the tactic was futile and would only complicate efforts to keep living costs in check.
“If they become unanchored, there is the risk actual inflation starts to pick up so we might see higher inflation,” Sethaput said ahead of a planned review of the inflation goal beginning in August. “Once inflation expectations pick up, so borrowing costs for the government and the country as a whole could increase.”
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Price gains returned to the Bank of Thailand’s (BOT) intended range in May, prompting policymakers to last week keep the key interest rate steady at 2.5 per cent for a fourth straight time.
The BOT has also spurned repeated calls from the government for rate cuts, arguing instead that structural reforms – and not cheaper borrowing costs – are what the economy needs to spur growth.
The Thai baht was little changed at 36.8050 to the US dollar as of 11.05 am local time after weakening the previous day. The currency is Asia’s second-worst performer so far this year after the Japanese yen.
Sethaput said the BOT currently has a higher tolerance level for the baht’s movement than before.
The BOT faces a delicate balancing act – trying to improve credit access for Thailand’s struggling micro, small and medium-sized enterprises while avoiding a further surge in indebtedness that could risk the nation’s financial stability.
Sethaput described the high public debt as a problem that will not go away anytime soon.
“It’s like a chronic disease rather than an acute one,” he said. “It will likely persist for a long time and it will be difficult to resolve, but not something that’s likely to lead to a crisis.”
When asked about pressure from the government for rate cuts and the perceived threat to the central bank’s independence, Sethaput said that countries that have an independent policy regime with central banks do a better job in terms of inflation outcomes, including financial stability.
“The proof is in the pudding,” said Sethaput, whose term as governor is due to end by September next year.
While BOT chiefs are eligible to run for a second term in office, Sethaput said he would not be in the running for the job as he would already hit the retirement age. BLOOMBERG
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