BOT Says No to Rate Cuts amid Slow Economic Recovery

BOT Governor Sethaput Suthiwartnarueput stated that although Thailand’s economic recovery is progressing slowly and growth has not yet reached its full potential, there is currently no immediate requirement to reduce interest rates.

Despite lower inflation rates, product prices remain high. Sethaput mentioned that the existing interest rate level is appropriate for supporting economic recovery and maintaining anchored inflation expectations within the target range.

The government and the central bank have been in disagreement for several months regarding interest rates, with Prime Minister Srettha Thavisin advocating for a rate cut to stimulate Southeast Asia’s second-largest economy.

Despite the pressure, the Bank of Thailand retained its key interest rate at 2.50% last month, the highest level in more than a decade, citing consistency with economic conditions and inflation. The subsequent rate review is scheduled for August 21.

Thailand’s economy expanded by a better-than-expected rate of 1.5% in the first quarter of the year, albeit slower than the 1.7% growth in the preceding quarter. The central bank has projected economic growth of 2.6% for this year and 3% for the following year, following a 1.9% expansion in the previous year that lagged behind regional peers.

Sethaput indicated that the potential growth rate in the 2023-2028 period is approximately 3%, a decrease from the 3.0%-3.5% range observed in the decade prior to the pandemic.

Additionally, the Bank of Thailand anticipates headline inflation to fall below the target range in the third quarter before rebounding within the range in the fourth quarter.

The annual headline inflation rate stood at -0.13% in the initial five months of 2024, with the BOT forecasting average headline inflation rates of 0.6% for this year and 1.3% for the subsequent year.