The Bank of Thailand should be independent as it determines the policy interest rate as inconsistent fiscal and monetary policies as well as a rush to cut rates will do more harm than good, warn pundits.
Therdsak Thaveeteeratham, executive vice-president of Asia Plus Securities (ASPS), said the interest rate direction should be decided by the central bank's Monetary Policy Committee without interference or conflict.
"The Bank of Thailand should be an independent organisation. Political interference can negatively affect public confidence in the financial system," he said.
Fiscal and monetary policies should also be reliable, said Mr Therdsak.
"If fiscal and monetary policies are consistent without conflict, that will make supervision of the economic system smooth and create more confidence and stability," he said.
Given current inflation rates, Mr Therdsak said the central bank has room to cut interest rates, but it may have concerns about geopolitical risks and the El Niño weather phenomenon, both of which could cause inflation to surge again.
Teerasak Tanavarakul, first vice-president of retail research – technical at CGS-CIMB Securities (Thailand), concurred, noting that discrepancies between fiscal and monetary policies may dampen investment sentiment.
"Both sides should have talked first before making comments on different directions in public because that hurts the Thai stock market," he said.
Nattaporn Triratanasirikul, deputy managing director of Kasikorn Research Center, said any interest rate cut should be mainly influenced by domestic factors, not movements by the Federal Reserve, which has yet to decide when it plans to reduce US rates.
"A rush to cut rates might indicate the Thai economy is slowing down, affecting exchange rates," she said.
According to Ms Nattaporn, the conflicts over Red Sea maritime routes could affect oil prices and push Thai inflation to rise.
"Policies regarding interest rates can be adjusted on a quarterly basis and we don't yet know how the situation in the Red Sea could affect the Thai economy," she said.
Jitipol Puksamatanan, head of macro and wealth research at CGS-CIMB Securities (Thailand), said the central bank could cut rates this year if the economy slows and GDP does not meet its target.
"Inflation declined over the past few months because of government measures to reduce the cost of living by subsidising electricity and energy prices," he said.
Once these measures end and inflation increases, interest rates may be maintained, said Mr Jitipol.
ASPS projects consumer prices in January to contract for a fourth consecutive month based on lower global oil prices and state measures to reduce living costs, while stimulus policies such as Easy E-Receipt may boost inflation in early 2024.
The core consumer price index (CPI) tends to rise month-on-month and year-on-year during stimulus policies, such as the Shop Dee Mee Kuen measure during 2020-23.
"As core CPI is still rising and stimulus measures are effective, the Bank of Thailand may not need to cut the interest rate soon," the brokerage said.