Thailand's Central Bank Chief and Finance Minister to Meet for Inflation Target Negotiations in September
Thailand's central bank chief and finance minister are set to meet in early September to discuss setting an inflation target for 2025. This move comes as the government looks to adjust its goals in order to potentially facilitate a rate cut that has been under consideration for some time.
The government has been at odds with the Bank of Thailand (BOT) over the past year, with repeated calls for the central bank to lower key interest rates to stimulate the country's economy, which is the second-largest in Southeast Asia. The newly elected Prime Minister, Paetongtarn Shinawatra, has even gone as far as to criticize the central bank's independence as an impediment to economic progress.
The upcoming negotiations will involve a review of the current 1-3% inflation target range, which has been in place since 2020. Former Prime Minister Srettha Thavisin, who was removed from office by a court order, has suggested that adjusting this target range could increase the likelihood of a rate cut.
During the meeting, the central bank will present a proposed target that has been approved by its monetary policy committee (MPC). While the exact details of this proposal have not been disclosed, it is expected that a consensus will be reached between the two parties.
Despite the government's calls for a rate cut, the central bank has maintained its benchmark interest rate at 2.50%, the highest it has been in over a decade. The next rate review is scheduled for October 16.
Thailand's inflation target is typically reviewed annually and must be agreed upon by both the BOT and the finance ministry, with final approval from the cabinet. The current target range has not been met since its inception, with headline inflation averaging just 0.11% from January to July.
Governor Sethaput Suthiwartnarueput has warned that changing the target could have negative consequences for credibility, inflation expectations, and borrowing costs. The central bank is preparing an open letter to the finance minister to explain why inflation has deviated from the target.
While Thailand's economic growth has shown some improvement, reaching 2.3% in the second quarter of the year, analysts have expressed concerns over fiscal policy uncertainties. The BOT has projected 2.6% growth for 2024, following a 1.9% growth rate last year.
In conclusion, the upcoming negotiations between the central bank and finance ministry regarding the inflation target for 2025 are crucial for Thailand's economic outlook. The outcome of these discussions could have significant implications for interest rates, inflation, and overall economic stability in the country. It is important for both parties to reach a mutually agreeable target that will support sustainable growth and development in the years to come.