Political Risks Drive Foreign Investment Out of Thailand as Government Seeks Greater Influence Over Monetary Policy

The ruling party in Thailand, under the leadership of Prime Minister Srettha Thavisin, is advocating for trusted individuals to be considered as candidates for the position of board chairman at the Bank of Thailand (BOT). While the chairman does not possess the authority to alter monetary policy, they play a crucial role in evaluating the performance of the BOT’s governor.

The current governor, Sethaput Suthiwartnarueput, has found himself at odds with the Thai PM and his party, who persistently advocate for a reduction in interest rates. Despite the pressure, the BOT governor remains reluctant to make premature adjustments, particularly in anticipation of any moves by the US Federal Reserve (Fed).

To exert more control over the BOT, Prime Minister Srettha aims to install someone aligned with his interests within the central bank, potentially influencing the decision-making process.


The interest rate set by the Fed currently stands at a range of 5.25-5.50%, in stark contrast to Thailand’s rate of 2.50%. Lowering Thailand’s rate could prompt investment funds to flow out of the country in search of more lucrative returns. Foreign investors have already divested Thai stocks by 2,300 million baht this month, and by 84,520 million baht since the beginning of the year.


However, this move to tighten control over the BOT carries risks. Mizuho Bank‘s chief economist warns that any short-term benefits derived from reduced policy rates could be overshadowed by increased risk premiums and currency depreciation. The independence of the central bank is not solely beneficial for the BOT and the stability of the Thai baht, but also for the government itself.

Bloomberg Economics suggests that this intervention could lead to concerns among investors regarding political interference in monetary policy.

There are discussions within the finance ministry about raising the Bank of Thailand’s inflation target, as part of a broader attempt to influence the central bank to implement the desired rate cuts for boosting immediate economic growth. Such actions could potentially trigger capital outflows, including a reduction in foreign direct investment.

Economists, including those at Goldman Sachs Group Inc. and CIMB Group Holdings Bhd, anticipate that the BOT will maintain its policy rate at the upcoming June 12 meeting, postponing potential rate cuts until later in the year or even until 2025.


In comparison to the foreign bond purchases exceeding $1 billion in Indonesia and India, and approaching $3 billion in South Korea, global funds only acquired $511 million of Thai bonds last month. Additionally, Thailand ranks at the bottom of the regional spectrum based on a measure of foreign investment compared to historical trends, especially when compared to its Asian counterparts that furnish real-time data on foreign inflows.