Thai finance ministry wants weaker baht, rate cut in 2024
The appropriate level for the baht, which is now around 33.39 to the US dollar, should be 34.5, its deputy finance minister says
THAILAND’S finance ministry has increased pressure on the Bank of Thailand (BOT) to cut interest rates to boost the economy and weaken the baht, just a day after an influential former governor had warned against meddling in the affairs of the central bank.
“It’s highly possible they will cut (the rates) this year either this meeting or next meeting,” Deputy Finance Minister Paopoom Rojanasakul said on Wednesday (Oct 9), a week ahead of the central bank’s next monetary policy decision.
“A 25-basis-point cut would be a good start, but whether that is enough or not, we will need to keep monitoring and adjusting,” he added.
The appropriate level for the baht, which is now around 33.39 to the US dollar, should be 34.5, Paopoom said.
The currency surged 14 per cent last quarter, making the nation’s exports more expensive compared with competitors.
Prime Minister Paetongtarn Shinawatra, who took office less than two months ago, is continuing her predecessor’s efforts to tighten control over the BOT.
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The central bank has ignored repeated calls to cut the key interest rate of 2.5 per cent – the highest level since 2013.
While Paetongtarn has not directly pushed for a rate cut herself, ministers including Paopoom have repeatedly called for lower borrowing costs, citing low inflation and the stuttering economy.
Boosting Thailand’s moribund growth, which has averaged less than 2 per cent a year for the past decade, is a top priority for Paetongtarn.
Aside from rolling out cash handouts to boost spending, priorities include convincing the BOT to cut interest rates, reducing high levels of household debt, and ensuring the recent rise in the baht does not undermine exports or tourism.
High levels of household debt are seen as one reason for the reluctance to cut rates, with the central bank earlier this year announcing measures for borrowers struggling to repay home loans and credit cards. It has also described the existing rate as “neutral”.
Paopoom warned that recent floods may hurt this year’s economic growth, which was earlier predicted to surpass 2.7 per cent.
The government has been considering a range of measures to support the nation’s economy from late this year to early next year, such as tax incentives to boost consumption and soft loans for home repairs.
It has also been planning a support package for people who are struggling to repay car and home loans. This may include letting commercial banks pay lower fees to the state bailout fund, in exchange for providing easier terms to debtors, he said.
In its campaign to change the central bank’s stance, the government is pushing to raise the 2025 inflation target to the 1.5 to 3.5 per cent rage, from 1 to 3 per cent, sources said.
There has also been manoeuvring to place Kittiratt Na-Ranong – a critic of BOT’s hawkish monetary policy and a ruling party loyalist – in the key role of central bank chairman. This could add pressure on the governor.
A panel of retired bureaucrats and regulators failed to pick the chairman on Tuesday, seeking more time to thoroughly verify details of the qualification of nominees.
This came after former BOT governor Tarisa Watanagase warned the government’s attempts to influence the appointment could lead to “disastrous consequences” for the economy.
Paopoom said pushing for a higher inflation band is not “as urgent as an interest rate adjustment”, accepting that it may take time to convince the central bank to revise its medium-term price target higher.
Personally, he would prefer the nation to have the inflation target set at a mid-point such as 2 or 2.5 per cent.
“That would be better than an inflation band,” the minister said. “Setting it at the mid-point would send a signal to the world that we accept less fluctuation in inflation, and we are committed to our target.” BLOOMBERG
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