Bank of Thailand Governor Sethaput Suthiwartnarueput sees no need for an emergency meeting to cut interest rates, reiterating that the problems weighing on the domestic economy won’t be solved by reversing monetary policy.
He made the remarks in an interview with Nikkei after Prime Minister Srettha Thavisin sought an urgent rate cut from the central bank to help boost demand in an economy struggling with growth below 2% a year.
“If we lower rates, it’s not going to make Chinese tourists spend more, or cause Chinese firms to import more petrochemicals from Thailand, or cause the government to disburse the budget more rapidly, and those are the three main factors that underlie the slow growth,” Mr Sethaput told Nikkei Asia.
Political pressure on the central bank has mounted as headline inflation has been negative for four consecutive months, largely due to government energy subsidies, while tourism receipts have been weak and exports barely growing, after contracting for much of last year.
The central bank raised its one-day repurchase rate by a total of 200 basis points during a year-long tightening cycle that increased the rate to a decade high of 2.5%.
The BoT has left the rate unchanged in the past two meetings, with policymakers saying they will be guided by economic data and that the benchmark rate remains among the lowest in the world.
The decision at the Feb 7 meeting to was not unanimous. Five members were in favour of holding the rate and two favoured a quarter-percentage-point cut.
Minutes of the meeting, released on Wednessday, said members agreed the economic outlook was “uncertain” and the central bank was ready to adjust rates if the economy and inflation changed significantly.
"At the same time, any monetary easing cannot resolve structural impediments, a key root cause of lacklustre growth," the minutes said.
Mr Srettha said that the next scheduled meeting of the central bank’s Monetary Policy Committee, on April 10, is too far away, and on Monday he called for an out-of-cycle meeting to address the issue.
The prime minister has pointed to weak economic figures to prove there is an economic “crisis”, in order to secure legislative approval for his signature digital wallet stimulus.
Mr Sethaput denies there is a crisis.
“The recovery is weak, but it’s there and it’s continuing,” he told Nikkei.
Shorter stays and lower spending by tourists are one major cause for concern in an economy heavily dependent on tourism. Mr Sethaput expressed doubt that the country could see 40 million foreign arrivals annually, the number recorded in 2019 before the pandemic.
“Things have really changed as a result of Covid,” he said. “It’s risky to assume that everything goes back to what it was just by inertia. You have to do something if you want to get that number.”
The central bank chief acknowledged the effect of higher interest rates on borrowers, but said cutting rates prematurely would threaten financial stability, as household debt persists at over 90% of GDP.
“That increase in household debt was, I think, in no small part due to the fact that interest rates have been very low for very long,” he said. “It encourages people to borrow, and so lowering rates again would, I think, send the wrong signal in terms of trying to get household debt on a more sustainable footing.”
The last time the MPC held a special meeting to deal with interest rates was during the early days of pandemic in 2020.
“We continue to think that the BoT will cut rates at its next meeting in April due to the significant slowdown in growth,” said Shreya Sodhani, an analyst at Barclays, adding that she does not see the bank holding an unscheduled meeting.
Euben Paracuelles of Nomura also does not see BoT yielding to political pressure. But he sees a rising possibility of an easing in April, with a total of 100 basis points in reductions this year, which would bring the rate down to 1.50%.
The BoT is “in a bit of a catch-22 situation”, Mr Paracuelles said. It was caught between the need to act on weak economic data and the need to stand its ground amid the PM’s strengthening push to cut rates.
Mr Srettha, who is also the finance minister, has acknowledged that he had no power to instruct the central bank as it is an autonomous institution, but added that the BoT should not disregard people’s livelihoods and problems.
“April is almost two months away, and I urge them to reconsider the decision,” he told reporters on Tuesday after a cabinet meeting.
The fallout of the differences is already being felt in Thailand’s equity as well as bond markets, amid uncertainty that policy can change in either direction. Investors have pulled out $1.5 billion from Thai stocks and bonds so far this year, the most in Southeast Asia, helping drive the baht to a three-month low against the dollar.
Mr Srettha’s push for a rate cut is the most overt bid by a Thai prime minister to influence monetary policy since 2013 when members of Yingluck Shinawatra’s administration pressured then central bank governor Prasarn Trairatvorakul to cut rates.
Mr Sethaput, a former World Bank senior economist and Yale University alumnus, was named BoT governor for a five-year term in July 2020. He had been a member of the MPC since 2014 before being picked for the top job.