Thai PM wants fiscal, monetary policies to work in tandem

THAI Prime Minister Srettha Thavisin and other senior ministers called for coordinated fiscal and monetary policy moves to pull South-east Asia’s second-largest economy out of a spiral of negative inflation and weak growth.

Srettha, who is also finance minister, said that the negative inflation reading for a fourth straight month in January was a definite sign of weakness in the economy. It was also a reminder that fiscal policy – which is the domain of the government – and monetary policy – determined by the Bank of Thailand (BOT) – should be synchronised, he said onX.

“If everyone acted differently, it would be difficult to solve the problem” ailing the economy, he added.

The prime minister and some of his ministers have cited the string of negative inflation readings to argue that it is time for the BOT to start reducing borrowing costs. The central bank has resisted such calls, while justifying its decade-high rate as an essential buffer against potential global shocks.

The Monetary Policy Committee, which meets on Wednesday (Feb 7), are expected to keep the rate steady at 2.5 per cent, according to all 24 economists surveyed by Bloomberg as of Monday afternoon.

The central bank lifted its benchmark rate by a total of 200 basis points in a tightening cycle that lasted little over a year, before pausing in November.

The escalating tension between the government and central bank has also weighed on the baht – Asia’s worst-performing currency after Japan’s yen this year – with foreign investors continuing to pull money from Thai stocks and bonds.

The high rate has been especially hard on the country’s small and medium-sized enterprises and low-income groups, said Srettha, who became prime minister in August 2023.

The Thai economy grew by an estimated 1.8 per cent last year, missing most forecasts, according to the finance ministry.

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Meanwhile, household debt has remained above 90 per cent of gross domestic product, and public debt has ballooned by half since 2019, to about 62 per cent.

The negative inflation is worrisome, and a short-term stimulus may be necessary to reverse the trend, said Deputy Finance Minister Julapun Amornvivat on Monday. He added that the BOT’s rate panel should be obsessed about financial stability.

Deputy Prime Minister and Commerce Minister Phumtham Wechayachai said that the economy remains in a crisis, and financiers are increasingly concerned about a number of tranches of bond rollovers due shortly. 

Phumtham urged critics of the government’s plans to stimulate the economy, including the so-called digital-wallet plan, to rethink their positions. 

Srettha has continued to push for a signature programme unveiled during the election campaign – a cash handout to almost every Thai adult. However, the programme’s price tag of US$14 billion, to be funded through borrowing, has drawn criticism from opposition parties and pushback from the central bank.