Bank of Thailand (BOT) Pressured to Lower Interest Rate

Thailand’s interest rates are at the center of a critical debate as the Ministry of Finance and the Bank of Thailand (BOT) weigh the potential for a rate cut. Finance Minister Pichai Chunhavajira has been vocal about the need for lower borrowing costs to spur economic growth and ease the financial strain on households. BOT has held its key interest rate at 2.5% since the fourth quarter of 2023. It has done so despite increasing pressure from the government for a reduction to boost liquidity.

The Finance Ministry is also pushing for an adjustment in the inflation target range for 2024. It has proposed a new band of 1.5%–3.5%. This would replace the current 1%–3% target and provide more flexibility for monetary easing. Consumer price inflation in Thailand remains well below expectations. In September the CPI increased a mere 0.6% further fueling calls for a looser monetary policy. Pichai argues that BOT lowering interest rates would not only help increase liquidity. It would also improve access to credit for creditworthy borrowers. This is an essential move as household debt in Thailand remains one of the highest in Asia. Currently, the debt-to-GDP ratio in Thailand is 89.6%.

Will changes in BOT mean lower bank interest rates in Thailand?

Governor Sethaput Suthiwartnarueput has maintained that the current rate settings are neutral and should be free from external interference. Prime Minister Paetongtarn Shinawatra’s administration is seeking greater influence over BOT’s decisions. They are considering appointing Kittiratt Na-Ranong, a critic of the central bank’s hawkish stance, as the new BOT chairman. This would allow for more oversight of central bank policy and the rate-setting process. Furthermore, it could potentially shift the balance in favour of lower interest rates.

Further discussions between the Finance Ministry and BOT are expected this month, just ahead of the central bank’s key monetary policy review on October 16. The outcome of these talks could shape the future direction of Thailand’s economic recovery efforts and the central bank’s approach to monetary policy.