Thailand's economy is tilting towards deflation, necessitating monetary stimulus to spur it, says finance permanent secretary Lavaron Sangsnit.
"Inflationary pressure is no longer a concern as Thailand's inflation rates dropped many months in a row," he said.
"The economic outlook is more deflationary, with policy rate cuts needed to support the economy, regardless of concerns about capital outflows."
The Commerce Ministry reported on Friday headline inflation, gauged by the consumer price index, dropped for the sixth consecutive month in March, falling 0.47% from March 2023.
The decrease was driven by food and energy prices thanks to government cost of living subsidies.
Regarding concerns about potential capital outflows if interest rates are reduced, Mr Lavaron said such outflows would have occurred long ago, as the Bank of Thailand's rates have consistently been much lower than those of the Federal Reserve.
He said a policy interest rate level of 2.5% has become a burden, particularly for low-income earners who have to bear higher costs.
Higher interest rates discourage investment, hindering business expansion, said Mr Lavaron.
Elevated rates also result in rising rejection rates for borrowers at financial institutions, especially for housing and automotive loans, as instalment payments increase, he said.
"Demand for housing and car loans still exists, but loan approvals have decreased significantly because of high interest rates. People used to be able to afford loans, but now they cannot because of high interest rates," said Mr Lavaron.
"Loan rejection rates have risen. Interest rates have a big impact on the economy."
He said when various consumption figures decrease it affects the government's revenue collection, which has started to fall below target.
Combined with the Finance Ministry's use of fiscal policies to reduce various taxes, such as oil levies, it leads to a significant decrease in government revenue, said Mr Lavaron.
As a result, he said government revenue collection in the first five months of fiscal 2024 (October to February) has fallen below the target by 2.5%, or 25 billion baht.
"We are fully committed to fiscal policies that are our responsibility, but what's important in advancing monetary and fiscal policies is sending the right signals, which is crucial for investors' decision-making," said Mr Lavaron.