Thailand’s central bank chief and finance minister to meet inflation target as government plans to cut interest

By Kitiphong Thaichareon

BANGKOK (Reuters) – Thailand’s central bank chief and finance minister will meet in early September to open negotiations on an inflation target for 2025, a senior official said, as the government pursues a new target on the rate cut he pushed. for months.

The government has been locked in a battle with the Bank of Thailand (BOT) since last year, repeatedly asking the central bank to cut key interest rates to help revive a sagging economy, South Asia’s second largest- East.

Paetongtarn Shinawatra, who was elected prime minister earlier this month, even described central bank independence in May as an “obstacle” in solving economic problems.

A revision to the 1-3% inflation target range, which is in place from 2020, could increase the chance of a rate cut, said her predecessor Srettha Thavisin, who was ousted by court order in June .

At the next meeting, the central bank will propose a target approved by its monetary policy committee (MPC), BOT Deputy Governor Piti Disyatat said.

“We have to wait for the meeting to see if there are differences of opinion,” Piti told Reuters, declining to reveal the MPC’s target.

“We expect to reach a common agreement.”

A first meeting scheduled for discussions between the BOT and the finance ministry on the inflation target was not previously reported.

Despite government calls for easing, the central bank kept its benchmark interest rate unchanged at an over-a-decade high of 2.50 percent. The next rate review will take place on October 16.

The finance ministry said it is preparing dates ahead of the September meeting, the exact date of which will be set after Paetongtarn confirms his cabinet, including the finance minister.

“We will not set our target in advance, but wait to see what they propose,” said Pornchai Thiraveja, head of the ministry’s fiscal policy office.

“We need to set a proper target.”

OPEN LETTER

Thailand’s inflation target is reviewed every year and must be approved by the BOT and the finance ministry and approved by the cabinet before the end of the year.

The BOT said the current target range is performing well, although headline inflation averaged just 0.11 percent in January-July.

The central bank has not reached its current inflation target range since it was set.

Last month, Governor Sethaput Suthiwartnarueput said changing the target would jeopardize credibility, inflationary expectations and borrowing costs.

The central bank was preparing an open letter to the finance minister to explain why inflation was off target, in line with existing protocols, Piti said.

In its last such letter in February, the BOT said headline inflation remained subdued largely due to government energy subsidies that reduced electricity costs and retail oil prices.

“Without such subsidy measures mentioned above, average headline inflation over the last 12 months would have been within the monetary target range of 1.6%,” the letter said.

Thailand’s economic growth rose 2.3 percent in the April-June quarter from a year earlier, but analysts said fiscal policy uncertainty clouded the outlook.

The BOT predicted growth of 2.6% for 2024, after 1.9% last year.