The Bank of Thailand can either hike or maintain its policy rate next month depending on economic data, says the central bank's governor.
Following a policy rate normalisation strategy, the Bank of Thailand aims to support an economic recovery, maintain price stability and preserve financial stability based on its assessments, central bank governor Sethaput Suthiwartnarueput said at a seminar on Wednesday hosted by its Northern Region Office.
The central bank has gradually increased its policy rate from 0.5% to 2.25% at present.
Looking ahead, the central bank will look to economic data to help determine policy rate movements, in line with the Thai economic context, he said.
"For the next meeting, the central bank could either increase or maintain the policy rate depending on the economic situation. However, we will not make a move simply to follow other central banks," Mr Sethaput said.
He said the Bank of Thailand wants to ensure a smooth economic recovery and reduce inflation to its target range of 1-3%. As a result, the central bank needs to increase the policy rate gradually, said Mr Sethaput.
Although rising interest rates would impose a higher financial burden on both household and business borrowers, the burden of higher funding costs would be less than an elevated inflation rate, he said.
The central bank is monitoring the vulnerable segment as household debt swells.
The proportion of a policy rate hike that is passed on via the minimum retail rate (MRR), which is charged to retail borrowers, is estimated at 50%, said Mr Sethaput.
This shows financial institutions have continued to increase lending rates, which provide an opportunity for borrowers to adjust to higher funding costs, he said.
In addition, Mr Sethaput said the Bank of Thailand has implemented financial assistance schemes to ease the financial burden of borrowers during the pandemic. However, debt assistance measures expire later this year as the economy revives.
For the post-pandemic period, the central bank is focused on managing household debt and implementing new guidelines to help the household sector access funding sources on a fair and equitable basis, he said.
These efforts include three guidelines on responsible lending, risk-based pricing and debt-service ratio (DSR), replacing debt aid measures during pandemic.
Mr Sethaput said the three initiatives would affect loan accessibility for some borrowers. The DSR measure in particular should dampen loan growth in the banking sector, he said.
The central bank is scheduled to implement the DSR measure in the first quarter of 2025, taking time to study it before deciding whether it will be implemented, said Mr Sethaput.
The regulator wants to reduce the country's household debt to 80% of GDP, in line with the Bank for International Settlements standard, he said.
However, sustaining the country's economy over the long term can sometimes conflict with these goals, said Mr Sethaput.
"The bank expects to take more time to reduce the household debt ratio while maintaining positive economic growth momentum. However, the direction could affect some borrowers and lenders," he said.