PM: New inflation target should increase rate-cut odds
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PM: New inflation target should increase rate-cut odds

Srettha declines to comment on latest central bank decision ‘as there will be conflict’

(Bangkok Post File Photo)
(Bangkok Post File Photo)

An upcoming review of the country’s inflation target range by the Bank of Thailand and the Ministry of Finance should increase the chance of an interest-rate cut, Prime Minister Srettha Thavisin said on Thursday.

The central bank left its key interest rate unchanged for a fourth straight meeting on Wednesday, despite calls by the government to reduce borrowing costs to help revive the economy.

The current inflation target range is 1% to 3%, which has been adopted since 2020. The target is reviewed every year.

“Setting a new range for inflation may give more flexibility in reducing interest rates,” Mr Srettha told reporters.

Last month, Finance Minister Pichai Chunhavajira said he would meet the central bank chief to review the inflation target range, which would lead to appropriate interest rate settings.

Mr Srettha has said the current policy rate of 2.5% is hurting the economy and the public, and it should be cut. The central bank said on Wednesday the rate was “neutral and not too high”.

“I’ve said it several times. I don’t want to say any more as there will be conflict,” the prime minister said on Thursday, adding he would also try other measures to stimulate activity, including accelerating budget spending.

The average headline inflation rate was -0.13% in the first five months of the year, and the central bank has forecast it would be 0.6% for the whole year.

The annual change in the Consumer Price Index was in negative territory for seven consecutive months before creeping up to 0.6% in April. It rose again in May to a 13-month high of 1.54%.

The central bank said in a statement on Wednesday that the current inflation target range was still in line with economic fundamentals and still reflected medium-term inflation expectations.

“Inflation has turned positive and is expected to increase, as the effects from the domestic diesel price subsidy and excess supply of certain raw food items are gradually phased out,” it said.

The economy grew 1.5% in the first quarter from a year earlier, slowing from 1.7% in the prior quarter, lagging regional peers.

The government has forecast growth of 2.5% this year, after last year’s 1.9% expansion.

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