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(Bloomberg) — Thailand’s finance ministry ratcheted up pressure on the Bank of Thailand to cut interest rates to boost the economy and weaken the baht, just a day after an influential former governor warned against meddling in the central bank.
“It’s highly possible they will cut this year either this meeting or next meeting,” Deputy Finance Minister Paopoom Rojanasakul said in an interview in Bangkok on Wednesday, a week ahead of the Bank of Thailand’s next monetary policy decision. “A 25 basis point cut would be a good start, but whether that is enough or not, we will need to keep monitoring and adjusting.”
The appropriate level for the baht, which is now around 33.39 to the US dollar, should be 34.5, Paopoom said. The currency surged 14% last quarter, making the nation’s exports more expensive compared to competitors.
Prime Minister Paetongtarn Shinawatra, who took office less than two months ago, is continuing her predecessor’s efforts to tighten control over the Bank of Thailand, which has ignored repeated calls to cut the key interest rate from 2.5%, the highest level since 2013. While Paetongtarn hasn’t directly pushed for a rate cut herself, ministers including Paopoom have repeatedly called for lower borrowing costs, citing low inflation and the stuttering economy.
Boosting Thailand’s moribund growth, which has averaged less than 2% a year for the past decade, is a top priority for Paetongtarn, who took office in August. Aside from rolling out cash handouts to boost spending, priorities include convincing the Bank of Thailand to cut interest rates, reducing high levels of household debt, and ensuring the recent rise in the baht doesn’t undermine exports or tourism.
Read: World Bank Cuts Thai Growth Outlook, Backs BOT in Holding Rate
For its part, high levels of household debt are seen as one reason for the reluctance to cut rates, with the BOT earlier this year announcing measures for borrowers struggling to repay home loans and credit cards. It has also described the existing rate as “neutral”.
Paopoom, 41, warned that recent floods may negatively affect this year’s economic growth, which was earlier predicted to be more than 2.7%. The government is considering a range of measures to support the nation’s economy from late this year to early next year, including tax incentives to boost consumption and soft loans for home repairs.
The government also plans a package to support people who are struggling to repay car and home loans. That may include letting commercial banks pay lower fees to the state bailout fund, in exchange for providing easier terms to debtors, he said.
In its campaign to change the central bank’s stance, the government is pushing to raise the 2025 inflation target from 1% to 3% range to 1.5% to 3.5%, people familiar have said. There has also been maneuvering to place Kittiratt Na-Ranong, a critic of BOT’s hawkish monetary policy and a ruling party loyalist, in the key role of BOT chairman, which could add pressure on the governor.
Read: Thai Government Seeks Higher Inflation Target to Enable Rate Cut
A panel of retired bureaucrats and regulators failed to pick the chairman on Tuesday, seeking more time to thoroughly verify details of the qualification of nominees. That came after former BOT Governor Tarisa Watanagase warned the government’s attempts to influence the appointment could lead to “disastrous consequences” for the economy.
Paopoom said pushing for a higher inflation band is not “as urgent as an interest rate adjustment,” accepting that it may take time to convince the central bank to revise its medium-term price target higher.
Personally, he would prefer the nation to have the inflation target set at a mid-point such as 2% or 2.5%.
“That would be better than an inflation band,” the minister said. “Setting it at the mid-point would send a signal to the world that we accept less fluctuation in inflation and we are committed to our target.”
–With assistance from Anuchit Nguyen.
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