Thailand’s Finance Ministry plans to propose a higher inflation target of 1.5%-3.5% for next year, adding pressure on the central bank to cut its key interest rate, according to people familiar with the matter.
The ministry is due to hold talks with the Bank of Thailand (BoT) to finalise the price band later this month, the people said, asking not to be named as they aren’t authorised to discuss the information. The central bank and the Finance Ministry need to agree on the target before it’s sent to the Cabinet for approval.
With consumer prices increasing by just 0.6% in September from a year earlier, already undershooting the current 1%-3% target, a higher band would give the government more ammunition in a long-running campaign calling for lower borrowing costs. BoT Governor Sethaput Suthiwartnarueput has said rate settings are neutral for Thailand’s economic and financial conditions, and called for central bank decisions to be free from interference.
Finance Minister Pichai Chunhavajira said Monday that his ministry may suggest a higher price band as it would create conditions for faster economic growth, while declining to comment on the proposed new level.
A BoT representative didn’t respond to a Bloomberg request for comment on Monday. The Bangkok Post first reported the new target being pushed by the Finance Ministry.
Govt-BoT feud
Pornchai Thiraveja, director-general of the Fiscal Policy Office, said the Finance Ministry is preparing several options for Mr Pichai to discuss with the central bank. The talks will be held after BoT’s rate decision on Oct 16, he said. The bank has kept its key rate steady at 2.5% since the fourth quarter of 2023.
Mr Pichai and Mr Sethaput last week discussed a range of issues from interest rate to a rally in the baht, with the finance chief making a case for a rate cut. The rate panel “should have reasons” if it decides not to lower borrowing costs, the minister said after the meeting.
Prime Minister Paetongtarn Shinawatra’s new government is also taking steps to have a greater sway over the central bank by pushing for Kittiratt Na-Ranong, a critic of the BoT’s hawkish monetary policy and a ruling party loyalist, to become the new BoT chairman. A decision on the new chairman is likely later this week.
While the BoT chairman doesn’t have powers to dictate monetary policy, the official can evaluate the central bank governor’s performance. The chairman also has a say in which outside experts join the seven-member rate panel headed by Mr Sethaput, who is due to retire in September next year.