In a frank discussion with local media, Bank of Thailand (BOT) Governor Sethaput Suthiwartnarueput acknowledged the slow pace of the country’s economic recovery and the resulting hardships for many citizens. The conversation covered various monetary and fiscal policies but was not recorded on TV or video.
Governor Sethaput faces significant pressure from the Srettha Thavisin administration to lower the policy rate, which the government sees as crucial for economic recovery. However, the BOT’s Monetary Policy Committee has kept the rate steady at 2.50 percent, asserting that the economy is gradually recovering.
Critics argue that the central bank is ignoring the severe economic struggles of millions of people dealing with high debt and declining incomes. “We acknowledge that although the economy is recovering, it is not robust, and many people are suffering due to the slow recovery,” Sethaput said.
With inflation well below the central bank’s target, some believe there is room for a rate cut to ease the burden on debtors. Nevertheless, the BOT maintains that the current interest rate is appropriate. “We must consider many factors, including economic output, and we are outlook-dependent,” Sethaput stated. He emphasized the need to maintain financial stability, noting that past rate cuts had led to increased borrowing.
Recent months have seen a slight increase in inflation, with expectations that it will fall within the central bank’s target range of 1-3 percent next year. However, headline inflation in June was just 0.62 percent year-on-year and -0.31 percent month-on-month, well below the target range.
Some economists are concerned about potential deflationary pressures that could make real interest rates relatively high. Sethaput countered this, noting that Thai consumers continue to spend. He pointed out that low inflation does not equate to widespread price reductions and that only a few sectors have cut prices.
Local industries are worried about the influx of cheaper Chinese imports, such as construction steel, electric cars, and consumer products. International critics have accused China of causing deflation by dumping goods in global markets. Increased tariffs and barriers in the US and Europe have redirected Chinese goods to the Thai market.
“We are very concerned about the high competition from China and need to address structural issues affecting local industries’ competitiveness,” Sethaput said, adding that a rate cut would not help the industrial sector compete with Chinese imports.
Critics have blamed the BOT’s high interest rate policy and substantial international reserves for the relative strength of the baht, which has negatively impacted exporters. Sethaput argued that the baht’s status as a safe haven asset has diminished, with the currency weakening by 7 percent against the US dollar this year.
Following the Asian financial crisis of 1997-98, the BOT has prioritized accumulating international reserves, currently over $220 billion. Sethaput mentioned that higher reserves offer greater policy flexibility and have helped avoid market panic despite large capital outflows in recent years.
Thailand’s current high household debt, at 91 percent of GDP, poses a significant challenge. Sethaput noted that addressing this issue is more difficult than tackling corporate debt due to the numerous small debts held by individuals.
A recent UN report accused some Thai banks of facilitating the Myanmar military regime’s financial activities. Sethaput acknowledged the report’s negative impact and assured that the central bank is investigating the allegations, with non-compliant banks facing penalties.
Governor Sethaput expressed skepticism about the government’s fiscal stimulus policies, including the proposed digital wallet cash handout scheme. He emphasized the need for fiscal consolidation, noting that long-term growth requires more than short-term stimulus measures.
Sethaput highlighted that Thailand’s potential growth has declined from previous rates of 4-5 percent, and achieving higher growth necessitates a significant increase in exports. However, traditional industries face stiff competition from China, and global shifts towards high-tech manufacturing limit export growth prospects.
The session concluded with Sethaput emphasizing the importance of addressing structural economic issues to ensure sustainable growth.
The event saw the participation of several high-ranking officials, including representatives from the BOT and various government departments, who were present to discuss and provide insights on the pressing economic issues facing Thailand.
