Bank of Thailand Holds Interest Rate Amidst Government Pressure

Thailand Central Bank, the Bank of Thailand (BOT), opted to maintain its key interest rate for the second consecutive meeting on Wednesday, resisting government calls for rate cuts to stimulate economic growth.

In a 5-2 vote, the BOT’s monetary policy committee decided to keep the one-day repurchase rate at 2.50%, the highest level over a decade. 

This decision follows a series of rate hikes totaling 200 basis points since August 2022 aimed at curbing inflation.

Economists’ Consensus and Policy Outlook:

All 27 economists surveyed by Reuters had anticipated the BOT’s decision to maintain the rate, although many suggested that the first-rate cut might occur sooner than previously expected. 

The central bank emphasized that the current rate is aligned with maintaining macro-financial stability, with two committee members advocating for a slight rate cut to address lower potential growth due to structural challenges.

Economic Assessment and Growth Prospects:

The BOT acknowledged that the economy is growing slower than anticipated, relying heavily on domestic demand. 

However, it cautioned that structural obstacles, particularly declining competitiveness, could further impede growth. The revised growth forecast 2024 was lowered to 2.5-3% from 3.2%.

Government’s Response and Disagreement:

The decision to maintain the interest rate may disappoint the government, especially after Prime Minister Srettha Thavisin reiterated calls for rate cuts to address the economic challenges he described as a crisis. 

This stance contrasts with the BOT’s position, as Governor Sethaput Suthiwartnarueput has emphasized that the economy is not in crisis and that monetary policy remains “broadly neutral.”

Inflation and Price Stability:

Consumer prices have experienced a downward trend for four consecutive months through January, largely due to government energy subsidies, falling below the central bank’s target range of 1% to 3%. 

The BOT anticipates headline inflation to hover around 1% in 2024, with a projected increase in 2025.

The BOT reiterated its readiness to adjust rates as necessary, highlighting its commitment to supporting economic stability and addressing evolving inflationary pressures.