Raising the policy interest rate at a time when the country's economy remains vulnerable could stall a recovery towards sustained growth, warns Finance Minister Apisak Tantivorawong.
"The Thai economic recovery is on track but is still vulnerable in some areas," he told the Bangkok Post in an exclusive interview. "The economy could lose momentum if any shocks such as political risk or interest rate hikes that add local financial costs are incurred.
"Everything is just a beginning point, we don't want anything to disrupt [the momentum]. We want the economy to become stronger to some extent. Steering the economy is akin to flying a kite -- we must make sure that the kite flies without being agitated, so we don't want to see anything that could hurt confidence."
A rate hike is necessary if a country is struggling with capital flight, but offshore funds are flooding into Thailand, he said.
The central bank's normalisation, in theory, is to build up policy space for any unexpected shocks in the future, he said, but that manoeuvre would attract more capital inflows and lead to the baht's run-up, which would come at the cost of not only exporters, but also 30 million farmers because prices of exported cash crops are quoted in US dollars.
The Bank of Thailand has maintained the policy rate at 1.5% since April 2015, but the growing split in rate setters' votes at last month's meeting reinforced the belief that a rise in the policy rate for the first time since August 2011 is on the horizon.
The meeting's minutes highlighted concerns over financial stability resulting from rampant search-for-yield behaviour as the low-interest environment for extended period leads to underpricing of risks, and the need to build up policy space.
The next meeting of the MPC is on Nov 14.
Although the central bank's benchmark rate is 50-75 basis points below the US benchmark rate and the spread is expected to widen as the US Federal Reserve hints at one more rate hike in December to a range of 2.25-2.50%, most economists forecast the Thai central bank to stand pat at 1.5% throughout this year as offshore funds continue flooding into Thai bonds on foreign investors' perception of a safe haven, given the country's solid external factors.
Thiti Tantikulanan, head of capital markets business for Kasikornbank, recently estimated that foreign net holdings in Thai bonds would hit a record 1 trillion baht this year.
While monetary policy room is widening, fiscal space will be reduced, Mr Apisak said, noting that fiscal policy is more effective under the current circumstances.
A rate hike would also deteriorate soured housing loans, an area that concerns the central bank, he said.
Given the wide gap between the central bank's benchmark rate and the Fed's rate, the Thai central bank will be unable to avoid lifting the rate because Thailand is a small country, he said.
"The rate must be raised, but it is a matter of timing and market reaction," Mr Apisak said. "If our country's economy grows sustainably, the rate can be lifted. If that isn't the case, we should delay the move."
GDP growth of 5%, the country's maximum potential, is achievable next year, underpinned by the general election, he said, and income disparity will be narrowed if the growth achieves the 5% threshold.
Third phase of welfare
The Finance Ministry is set to adopt family registration for welfare and subsidies next year with the aim of better directing assistance to those who are in need, Mr Apisak said.
Some individuals earn no more than 100,000 baht a year but receive financial support from other family members, bringing their actual income above the threshold the Finance Ministry has set for welfare and subsidies.
But the criteria for family registration is not yet available, the finance minister said.
The government is offering a monthly living allowance of 200-300 baht to 11.4 million people earning up to 100,000 baht a year to buy goods at Thong Fah Pracha Rat shops and a subsidy for public transport fares to help alleviate living costs.
Those who signed up for job training receive an additional living allowance of 100-200 baht a month. Some 5.3 million out of 11.4 million recipients of the government's welfare and subsidy scheme are living below the national poverty line, earning up to 30,000 baht a year.
The family registration plan for welfare and subsidies is similar to Chinese policy, Mr Apisak said. The Chinese government has delegated responsibility to state officials to help families escape poverty via job training.
China's efforts saw the number of people living in poverty fall to 20 million from 40 million.
Regarding the fact that only half of the 8 million welfare recipients have signed up for career training, Mr Apisak said that most recipients are elderly and bedridden, but some are able to work.
Another indicator that the income inequality problem has been reduced is the economic expansion as the government tries to boost the economy at full throttle, he said.
Single financial account
Mr Apisak said new lending practices that require small and medium-sized enterprises (SMEs) to have single financial accounts will start from the beginning of next year.
"We gave them a long time [three years] to adapt to the measure, and we have trained them to arrange basic financial accounts and the Federation of Thai Industries also offers them programmes for basic financial accounting," he said. "If the lending practice is pushed back, my question is whether SMEs will ever be ready to use single financial accounts."
The state-owned Small and Medium Enterprise Development Bank of Thailand has proposed a one-year grace period for SMEs to fully comply with the new lending practices, saying 80% of small SMEs do not comply with accounting standards.
Under the single account scheme, the Bank of Thailand will require banks to give greater consideration to financial statements submitted to the Revenue Department when considering SME loans, starting next year.
The requirement, however, has stoked concerns that the single account scheme will lessen access to finance for most SMEs, which tend to use more than one financial account and submit the smallest one to understate or avoid tax.
Mr Apisak said the Revenue Department is not asking SMEs for complicated financial accounts, but many of them do not want to comply.
"If a country has a large number of tax dodgers, how can that country stay alive?" he said.