The Bank of Thailand has chosen to maintain its key interest rate at 2.5%, despite pressure from the Prime Minister to decrease rates in a bid to stimulate the economy.
Key Points
- The bank withstood pressure from the prime minister to cut interest rates in order to uphold macro-financial stability and sustainable growth.
- Despite the prime minister’s insistence on a rate cut, the central bank retained the interest rate at 2.5%, although two committee members voted in favor of a reduction to 2.25%.
- The decision was influenced by concerns about the slowdown in the external sector, robust growth in private consumption, and the imperative of maintaining stability in the financial system, with potential rate cuts anticipated in the latter part of the year.
- The bank cited reasons such as the moderation of momentum in the external sector and strong private consumption growth for its decision. While the decision aligned with expectations, it was not unanimous, with two committee members voting in favor of a rate cut.
- The Thai economy is forecasted to decelerate in 2024 due to declines in exports and manufacturing activity amid softening global demand and easing growth in China. Structural obstacles are constraining merchandise exports and tourism more than initially projected.
Monetary Policy Committee’s Decision 1/2024 (bot.or.th) The decision was widely anticipated, with 27 economists foreseeing no change in the rate, but the central bank expressed readiness to adjust rates as necessary, citing slower-than-projected economic growth and persisting concerns about inflation.
The Prime Minister has strongly voiced concerns about the high interest rates burdening the economy, but the central bank has stressed the significance of upholding macro-financial stability and not solely focusing on inflation. The current policy interest rate is deemed essential for preserving macro-financial stability, a critical basis for sustained long-term growth. Consequently, most members voted to maintain the policy rate at this meeting.
Monetary Policy Committee’s Decision 1/2024 (bot.or.th) The prime minister advocated for a rate reduction to enhance domestic demand, but the central bank governor attributed the fall in consumer prices to government subsidies for fuel and electricity. In January, Thailand’s annual inflation rate remained negative for the fourth consecutive month at minus 1.1%, marking the lowest level in 35 months. This was primarily credited to the government’s energy subsidy program, as per data from the Commerce Ministry.
The Monetary Policy Committee (MPC) commenced raising interest rates in August 2022, incrementally increasing them by 0.25 percentage points on eight occasions, resulting in the borrowing cost reaching a 10-year peak of 2.5% in September 2023. The bank has also revised down Thailand’s 2024 economic growth forecast to between 2.5% and 3.0% from 3.2%, citing reasons such as diminishing exports and manufacturing activity. Analysts anticipate the central bank to contemplate rate reductions in the second half of the year if GDP falls below target rates. The next MPC meeting is scheduled for April 10th.
The economy is estimated to have expanded by 2.5% to 3% last year, with official GDP figures set to be released on February 19.
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