The Bank of Thailand should consider reducing interest rates in the second half to relieve the financial burden of small and medium-sized enterprises (SMEs), which are facing tougher competition and an uncertain economy, says the Federation of Thai Industries (FTI).
The central bank’s Monetary Policy Committee voted last month to maintain its policy rate at 2.5%, the highest level in a decade. Its next rate review will take place on June 12.
The rate guides commercial banks’ loan and deposit rates, so if the committee agrees with the suggested reduction, banks are expected to follow suit, which would help SMEs better manage their finances, said Kriengkrai Thiennukul, the FTI chairman.
“State-owned banks have already cut loan rates to reduce people’s burden, increase business activities and support economic expansion,” he said.
Commercial banks also agreed, after talks with Prime Minister Srettha Thavisin, to cut their minimum retail rate for loans to at-risk individuals and small businesses.
A reduction in the central bank’s interest rate could help SMEs survive the economic crisis caused by geopolitical conflicts, a slowdown in the export sector and the incomplete recovery of tourism, said the FTI.
However, it also stressed that it respects the central bank’s independence when setting the policy rate.
SMEs are facing significant challenges accessing finance, which could lead to many companies not surviving due to sluggish cash flow. The government should support or introduce measures to facilitate their financial access, Mr Kriengkrai said.
Many businesses are also struggling to deal with the impact of the import of cheap and low-quality products. The government must take more measures to better protect local businesses and manufacturers, he added.
The FTI expects the number of industrial sectors affected by the imports to rise from the current 25 to 30, Mr Kriengkrai said, adding that affected industries include steel, garments and textiles, and consumer products.
The increase results from insufficient measures to counteract the influx of cheap imports, especially from China.
One measure that seeks to solve the problem is the government’s decision to impose a 7% value-added tax (VAT) on imported goods valued from one baht up, commencing this month, according to the Finance Ministry.
Imported goods sold for less than 1,500 baht per parcel were previously exempt from VAT.
The Joint Standing Committee on Commerce, Industry and Banking predicts GDP growth for 2024 will be between 2.8% and 3.3%. It also forecasts export growth of 2-3% and inflation rates ranging from 0.7% to 1.2%.
The government’s controversial 10,000-baht digital money handout scheme should help spur the economy in 2025, said Mr Kriengkrai.