The public sparring between Prime Minister Srettha Thavisin and Bank of Thailand (BoT) governor Sethaput Suthiwartnarueput on monetary policy risks undermining the institution's independence and poses a threat to credit ratings, according to the opposition Move Forward Party (MFP).
Mr Srettha, who has also been urging the BoT to urgently cut rates from a decade-high, should sit down Mr Sethaput to devise a coordinated fiscal and monetary policy response to revive the economy, MFP deputy leader Sirikanya Tansakun said in an interview late on Thursday. The two should stop talking to each other through the media, she said.
Mr Srettha, also the finance minister, has vowed to continue his push for lower interest rate even after the central bank chief said that there was no compelling reason to call an emergency meeting to review the policy rate that is currently at 2.5%, the highest since 2013. The two have clashed for months on the approach to reviving Southeast Asia’s second-largest economy, rattling investors and turning the baht into the worst performer in the region.
"This looks like a war of nerves through media," Ms Sirikanya said in an interview late on Thursday. “It doesn’t portray a good image of the nation among foreign investors, who very well understand the importance of central bank independence."
Cutting interest rate may not be the right approach to boost the economy in the short term given the rate transmission takes time, Ms Sirikanya said, adding that if inflation remains below target for a long spell, it may support the case for easing.
Move Forward stands for the independence of the BoT, Ms Sirikanya said. The upstart party won the largest share of votes and seats in the general election on May 14 last year but was thwarted from taking power by a conservative establishment.
Global investors may become increasingly concerned about Mr Srettha's attempts to influence monetary policy, Ms Sirikanya said, while cautioning that Thailand should be wary of falling into the same league as Turkey, which has seen political interference in the central bank domain.
Bank of Thailand governor Sethaput Suthiwartnarueput, left, and Prime Minister Srettha Thavisin discuss economic policy at Government House, Bangkok, on Oct 2, 2023. (Photo: Government House)
Turkish President Recep Tayyip Erdogan frequently called for rate cuts in 2021 and intervened in monetary policy, triggering an outflow in foreign capital from the country’s equities and government bonds. The Turkish lira was the worst performing emerging-market currency against the United States dollar that year.
While Mr Srettha is eager for monetary stimulus to help a floundering economy, the central bank argues that cheaper borrowing costs will not fix structural problems in the economy.
If the differences aren’t settled sooner, they risk souring the country’s sovereign rating outlook, said Sirikanya, a lawmaker and former researcher at the Thailand Development Research Institute. Thailand should draw lessons from Hungary, where clashes between the government and the central bank led to a rating outlook cut, she said.
"We are starting to see some negative signs — from slow growth to deteriorating fiscal status and now the government moves that pose risk to central bank’s independence," Ms Sirikanya said. "These are not good combination at all."
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