Thailand’s Finance Ministry is planning to propose an increased inflation target of 1.5%-3.5% for the upcoming year, which could intensify pressure on the central bank to lower its key interest rate, according to sources close to the matter.
The ministry is scheduled to engage with the Bank of Thailand (BoT) to finalize this price range later this month. These sources, who requested anonymity due to the confidential nature of the discussions, indicated that an agreement between the central bank and the Finance Ministry is necessary before the proposal is submitted to the Cabinet for approval.
Consumer prices rose by just 0.6% in September compared to the previous year, falling short of the current target of 1%-3%. A higher inflation target would provide the government with additional leverage in its ongoing campaign to reduce borrowing costs. BoT Governor Sethaput Suthiwartnarueput has stated that the current rate settings are neutral regarding Thailand’s economic and financial situation and emphasized the importance of keeping central bank decisions independent from external pressures.
Finance Minister Pichai Chunhavajira mentioned on Monday that his ministry may recommend a higher price band to foster quicker economic growth, although he did not disclose the proposed new target.
A representative from the BoT did not respond to a Bloomberg request for comments on Monday. The Bangkok Post was the first to report on the new target being advocated by the Finance Ministry.
Government and BoT Tensions
Pornchai Thiraveja, director-general of the Fiscal Policy Office, noted that the Finance Ministry is preparing various options for Mr. Pichai to discuss with the central bank, with discussions scheduled to follow the BoT’s rate decision on October 16. The central bank has maintained its key rate at 2.5% since the fourth quarter of 2023.
Following a meeting last week, Mr. Pichai and Mr. Sethaput addressed several topics, including interest rates and the recent strengthening of the baht, with the Finance Minister arguing in favor of a rate cut. He stated that the rate-setting committee “should have reasons” if it decides against lowering borrowing costs.
Prime Minister Paetongtarn Shinawatra’s new administration is also seeking to influence the central bank more significantly, pushing for Kittiratt Na-Ranong, a critic of the BoT’s strict monetary policy and a supporter of the ruling party, to become the new chairman of the BoT. A decision on the new chairman is expected to be made later this week.
Although the BoT chairman does not have the authority to dictate monetary policy, the position includes the responsibility of assessing the central bank governor’s performance and influencing which external experts are selected to join the seven-member rate panel led by Mr. Sethaput, who is set to retire in September next year.
