The cabinet has sent a letter to the Bank of Thailand, advocating for a cut in interest rates to help maintain inflation within the desired range.
Following the weekly cabinet meeting on Tuesday, Deputy Finance Minister Paopoom Rojanasakul stated that they decided to send a letter to the central bank prior to Wednesday’s Monetary Policy Committee (MPC) meeting.
This action marks the second instance in which the current government has made such a request.
Mr. Paopoom noted that the letter emphasized the cabinet’s concern over the possibility of inflation falling below the targeted 1-3% range.
Thailand’s headline inflation rate has remained exceptionally low, averaging 0.4% last year—the lowest in four years. The inflation rate reported earlier this month stands at 1.3%.
Looking ahead to 2025, the Commerce Ministry forecasts that headline inflation will be between 0.3-1.3%, with a midpoint of 0.8%, driven by economic recovery, increased investment, rising consumption, and a booming tourism sector.
Mr. Paopoom expressed his belief that the central bank’s monetary policy should align with the inflation target and synchronize with the government’s fiscal policy.
“Fiscal policy alone cannot effectively drive the economy. We must work together according to the cabinet’s viewpoints,” he said.
Regarding the extent of the policy rate cut, Mr. Paopoom indicated that any reduction would be beneficial.
He also mentioned that any decision to cut rates should consider various factors at each stage, including the effects on the baht and economic growth.
In October of the previous year, during the MPC’s fifth meeting, the rate was cut by 25 basis points to 2.25%. This adjustment helped facilitate capital flow into the financial system and bolstered economic circulation, according to Mr. Paopoom.
“Monetary policy is a significant issue. A single rate cut can have a substantial positive impact on the economy,” he said.
Commenting on a recent statement by the secretary-general of the National Economic and Social Development Council about reserving monetary ammunition for times of economic downturn, Mr. Paopoom remarked that Thailand still possesses considerable monetary policy leeway and should not be overly conservative.
He critiqued past actions for being too slow, rendering them ineffective.
The MPC typically meets six times a year, adhering to a fixed schedule. At its sixth and final meeting of 2024 in December, the committee unanimously decided to keep the policy rate at 2.25%.
The committee observed that economic growth was uneven across sectors and faced challenges such as increased external competition and growing uncertainty.
It also noted a slowdown in credit growth due to factors such as reduced investment demand in some sectors, debt repayments from the pandemic era, and elevated credit risk.
The committee maintained that interest rates should stay at levels consistent with a broadly neutral monetary policy stance, in alignment with an economy expected to grow near its potential, inflation moving towards the target range, and the need to preserve long-term financial and economic stability.
Most members at the October 2024 MPC meeting agreed that economic and inflation trends were aligning with forecasts, and long-term financial stability risks were diminishing.
They deemed the 25bps cut appropriate to mitigate potential financial conditions affecting the economy, while supporting efforts to reduce household debt-to-income ratios and easing debt burdens.
