The Bank of Thailand (BoT) wants the new government led by Srettha Thavisin of the Pheu Thai Party to pursue fiscal consolidation in tandem with monetary policy to avoid fuelling inflation in the economy.
That is part of BoT Governor Sethaput Suthiwartnarueput’s wish-list as he seeks to mitigate the impact of tighter United States interest rates on Southeast Asia’s second-largest economy. The BoT is already near where it wants to be rate-wise to support economic growth and check prices after delivering 175 basis points of moves, he said.
“The important thing on policy front, both on monetary and fiscal sides is to try to normalise the policies and get some more consolidation,” he said in an interview with Bloomberg Television’s Haslinda Amin Friday, on the sidelines of the Kansas City Fed’s annual symposium in Jackson Hole.
“We have done lots of fiscal stimulus appropriately during Covid (coronavirus disease), but now is the time to rebuild our buffer and get public debt at a more attractive trajectory,” he said.
The BoT earlier this month signalled readiness to pause its monetary tightening amid the economy’s slowing recovery. The policy rate is at an “inflection point,” Mr Sethaput said, hinting that tackling economic challenges required fiscal approach to work in tandem with monetary priorities as the economy moves past the pandemic-induced downturn.
The central bank’s word of caution against expansive fiscal policy comes after this week’s election of Mr Srettha as Thailand’s 30th prime minister. While the development ended a months-long political impasse, it raises the prospect of a looser budget.
Mr Srettha’s Pheu Thai Party has pledged to stimulate the economy through a mix of cash handouts and fiscal measures, including payment of 10,000 baht (US$284) each to all Thais aged 16 and above through digital wallet, raising minimum wages and boosting crop prices.
“If it happens,” Mr Sethaput said, there’s no doubt “it will add additional pressure on inflation.”
“A lot of details are still unclear at this point,” he said, adding that “it’s a bit premature for me to assess what the impact of the policies will be on our forecast and our policy response.”
Newly appointed Prime Minister Srettha Thavisin gestures in front of an image of former Thai prime minister Thaksin Shinawatra in Bangkok on Tuesday. (Photo: Reuters)
Thailand’s fiscal consolidation efforts are likely to be constrained by implementation of poll promises, Fitch Ratings had said last month.
A looser fiscal stance raises the risk of a selloff in Thai assets and add to the baht’s volatility, amid a still hawkish Fed and rising commodity prices.
The Thai baht is among the worst performers in Asia this month, even as the political uncertainty ended.
The BoT will only intervene to smooth out excess volatility in the currency, Mr Sethaput said, adding that the central bank does not have a pre-determined level for the baht.