Thailand’s central bank governor and finance minister are set to meet in early September to initiate discussions on an inflation target for 2025, according to a senior official. The government’s aim is to establish a new goal in hopes of achieving a rate cut that it has been advocating for months.
Since last year, the government has been in a disagreement with the Bank of Thailand (BoT), consistently urging the central bank to lower key interest rates to stimulate a struggling economy, which is the second-largest in Southeast Asia.
Paetongtarn Shinawatra, who was elected prime minister this month, previously referred to the central bank’s independence as an “obstacle” to addressing economic issues when she spoke in May.
A review of the existing 1-3% inflation target range, established in 2020, could pave the way for a possible rate reduction, as noted by her predecessor Srettha Thavisin, who was removed from office by a court ruling in June.
During the upcoming meeting, the central bank is expected to present a target that has been approved by its Monetary Policy Committee (MPC), according to BoT assistant governor Piti Disyatat.
“We will need to wait for the meeting to determine if there are any differences of opinion,” Mr. Piti told Reuters, but refrained from revealing the MPC’s target. “We anticipate reaching a mutual agreement.”
This meeting for discussions concerning the inflation target has not been previously reported.
Despite calls from the government for a rate reduction, the central bank has maintained its benchmark interest rate at a more-than-decade-high of 2.50%. The next review of the rate is scheduled for October 16.
The finance ministry stated that it was compiling data in preparation for the September meeting, with the exact date to be confirmed once Ms. Paetongtarn finalizes her cabinet, including the finance minister.
“We won’t establish our goal in advance but will wait to hear their proposal,” said Pornchai Thiraveja, the head of the ministry’s Fiscal Policy Office. “It’s important to set an appropriate target.”
Open Letter
Thailand’s inflation target is reviewed annually and must be agreed upon by both the BoT and the finance ministry, as well as receive cabinet approval by year’s end.
The BoT has asserted that the current target range is functioning well, despite the headline inflation averaging just 0.11% from January to July. Since the target was set, the central bank has not met it.
Last month, Governor Sethaput Suthiwartnarueput indicated that altering the target could jeopardize credibility, inflation expectations, and borrowing costs.
The central bank is preparing an open letter to the finance minister to clarify why inflation has fallen outside the target range, following established protocols, Mr. Piti explained.
In a previous letter sent in February, the BoT stated that the low headline inflation was largely due to government energy subsidies, which reduced electricity tariffs and retail oil prices.
“Without these subsidy measures, the average headline inflation over the past 12 months would have remained within the monetary target range at 1.6%,” the letter noted.
Thailand’s economic growth accelerated to 2.3% in the April to June quarter compared to the previous year; however, analysts have suggested that uncertainty surrounding fiscal policy could cloud future prospects.
The BoT has projected a growth rate of 2.6% for 2024, following last year’s growth of 1.9%.
