The Bank of Thailand on Wednesday left its benchmark interest rate unchanged, as widely expected and despite repeated calls from Prime Minister Srettha Thavisin to cut rates to revive faltering economic growth.
The central bank’s Monetary Policy Committee (MPC) voted 5-2 to keep the policy rate at a 10-year high of 2.50%. Two members voted for a cut of a quarter percentage point, the MPC said in a statement posted on the central bank website.
All 27 economists in a Reuters poll had predicted the rate would not change, while saying the first rate cut was more likely to come earlier than they expected. The next MPC meeting is scheduled for April 10
The baht was down slightly at 35.58 to the US dollar after the announcement.
The central bank said it stood ready to adjust rates as appropriate. The economy is growing more slowly than expected and would be supported by domestic demand, it added.
Mr Srettha said after the announcement that he did not agree with the central bank’s decision.
“I want fiscal and monetary policy to work together, but I have no power to interfere with the central bank’s duties,” he told reporters.
The prime minister on Tuesday repeated his view that a rate cut of 25 basis points would help people and lift domestic demand without increasing inflation, which remains a concern of the BoT.
Consumer prices in January contracted by 1.1%, after a drop of 0.8% in December. Consumer inflation has now fallen for four straight months, which Mr Srettha says supports the case for lower interest rates.
Since inflation is below even the lower end of the central bank’s target range of 1-3%, he said, even after cutting the policy rate from 2.5% to 2.25%, there would still be room for more reductions.
“If a crisis or something happens, the rate can still be cut a lot further. Why don’t we start doing it today?” said the prime minister, who also serves as the finance minister.
However, Bank of Thailand Governor Sethaput Suthiwartnarueput has maintained that the decline in consumer prices is partly the result of state subsidies for fuel and electricity.
Mr Sethaput also takes issue with the government’s claim that the economy is in “crisis”, which it has used to justify a proposal to borrow 500 billion baht to finance a handout of 10,000 baht in digital cash to some 50 million people later this year.
The central bank chief said last month that the digital wallet would be only a short-term fix, and that the economy needed fundamental reforms in order to return to sustainable long-term growth.
The MPC began lifting interest rates in August 2022, around the same time as other central banks worldwide. It increased them by 0.25 percentage points eight times, bringing the borrowing cost to a 10-year high of 2.5% in September last year.
The committee halted interest-rate hikes in November 2023.
Thailand’s policy rate is still the lowest in Southeast Asia, with the average for the region 3.25% to 3.5%.
The BoT on Wednesday lowered its 2024 economic growth forecast to a range between 2.5% and 3%, from 3.2% predicted earlier.
“Structural headwinds are restraining merchandise exports and tourism more than expected,” the MPC said in its statement. “Meanwhile, domestic demand continues to expand and remains a key driver of the economy.
“Looking ahead, structural impediments, particularly deteriorating competitiveness, would increasingly hamper growth in the absence of structural reforms.”
Inflation, the MPC said, should gradually pick up towards the central bank’s target range. “albeit at a slower-than-expected pace”.
The economy is estimated to have expanded 2.5% to 3% last year, the Joint Standing Committee on Commerce, Industry and Banking said this week. The Ministry of Finance earlier offered a much less optimistic figure of 1.8%.
The National Economic and Social Development Council is responsible for official gross domestic product figures, which are due to be released on Feb 19.