Thai authorities have tentatively agreed to maintain the inflation target at 1% to 3% for next year, but the Finance Ministry has put pressure on the Bank of Thailand (BOT) to implement measures aimed at stimulating both price gains and growth in Southeast Asia’s second-largest economy, Bloomberg reports.
Finance Minister Pichai Chunhavajira told reporters following a meeting with BOT Governor Sethaput Suthiwartnarueput on Tuesday that the 1-3% target, in place since 2020, could be retained in 2025 provided the central bank comes up with policies to push inflation towards 2%.
“The 1%-3% inflation target is acceptable but the MPC and the BOT should have measures to support growth and push inflation to the appropriate level, near the midpoint at 2%,” said Pichai, referring to the Monetary Policy Committee.
While leaving the official target unchanged may appear as a victory for the BOT, Pichai’s comments signal growing pressure on the central bank to further loosen monetary policy. This comes after the BOT’s surprise interest rate cut earlier this month, the first in four years, which Governor Sethaput insisted was not the start of an easing cycle.
Inflation has undershot the BOT’s target this year, averaging 0.2% in the first nine months. However, the central bank anticipates inflation to return to the lower end of the target range in the fourth quarter.
Despite this, persistent low core prices and headline inflation below the target range for four consecutive months have led Standard Chartered Bank to suggest further easing may be necessary.
The Finance Ministry, however, expressed satisfaction with the BOT’s proposals to maintain the CPI band, as long as the central bank could devise policies to support growth, inflation, and address the issue of household debt. Pichai also suggested that the BOT should consider foreign exchange rate management and inflation in its monetary policy decisions.
The Finance Ministry has repeatedly advocated for a higher inflation target to lower borrowing costs and accelerate economic growth. The BOT, however, has maintained that the current target has served the economy well, arguing that the bar for further easing “has to be reasonably high.”
Under Thai regulations, the Finance Ministry and the BOT must agree on the inflation target before it is officially adopted. The target must also be approved by the cabinet.
The central bank is expected to present its proposals for boosting inflation and growth, which the Finance Ministry will review before submitting the framework for cabinet endorsement.
Burin Adulwattana, chief economist at Kasikorn Research Center, described the tentative agreement on inflation as a “good step” demonstrating compromise between the two parties. He emphasized, however, that the BOT’s ability to meet the government’s demands without compromising its credibility remains to be seen. Burin highlighted that the central bank has various tools beyond interest rate adjustments for managing inflation and growth.
Thailand’s economy is projected to expand by 2.7% this year and accelerate to around 3% next year. The country’s growth rate has lagged behind its neighbors, averaging less than 2% over the past decade, hampered by high household debt and a manufacturing sector struggling with cheap imports from China.
Prime Minister Paetongtarn Shinawatra’s administration has already implemented measures to address the cost of living, including a larger budget and the distribution of $4 billion in cash to vulnerable groups. The government is expected to unveil a package of measures to tackle high household debt within the next two weeks.
