The cabinet has sent a letter to the Bank of Thailand urging a cut in interest rates to help ensure inflation stays within the targeted range.
Speaking after the weekly cabinet meeting on Tuesday, Deputy Finance Minister Paopoom Rojanasakul said the cabinet resolved to send a letter to the central bank ahead of Wednesay's Monetary Policy Committee (MPC) meeting.
This marks the second time the current administration has sent such a request.
He said the letter focused on the cabinet's concern that the inflation rate would dip below the target range of 1-3%. Thailand's headline inflation rate has been persistently low for an extended period, with the rate averaging 0.4% last year, the lowest level in four years.
The current inflation rate, reported earlier this month, is 1.3%.
For 2025, headline inflation is forecast to range between 0.3-1.3%, with a midpoint of 0.8%, attributed to the economic recovery, increased investment, growing consumption and the tourism boom, according to the Commerce Ministry.
Mr Paopoom said the cabinet believes the central bank's monetary policy must align with the inflation target and be consistent with government fiscal policy.
"Fiscal policy alone cannot effectively drive the economy. We must work together according to the cabinet's viewpoints," he said.
Regarding the extent of the policy rate cut, Mr Paopoom said any reduction would be a positive step.
However, he said any rate cut must take multiple factors into account at each stage, such as the impact on the baht and economic growth.
In October last year, at the MPC's fifth meeting of the year, the rate was reduced by 25 basis points (bps) to 2.25%. This adjustment facilitated capital flow into the financial system and improved economic circulation, said Mr Paopoom.
"Monetary policy is a significant issue. A single rate cut can have a substantial positive impact on the economy," he said.
Regarding the recent remark by the secretary-general of the National Economic and Social Development Council that monetary ammunition should be reserved for times of economic distress, Mr Paopoom said Thailand still has ample monetary policy space and does not need to be overly cautious.
He said actions were often taken too slowly in the past, making them ineffective.
Typically the MPC follows a fixed schedule, meeting six times a year. At its sixth and final meeting of 2024 in December, the MPC unanimously voted to maintain the policy rate at 2.25%. The committee noted that economic growth varied across sectors and faced challenges such as increased external competition and heightened uncertainty.
The MPC also observed a slowdown in credit growth due to factors such as decreased investment demand in certain sectors, repayment of debt accumulated during the pandemic, and elevated credit risk.
The committee said interest rates should remain at a level consistent with a broadly neutral monetary policy stance, aligning with an economy expected to grow near its potential, inflation trending towards the target range, and the need to maintain long-term financial and economic stability.
The majority of members at the October 2024 MPC meeting assessed that economic and inflation trends were in line with projections, while long-term financial stability risks had declined. They deemed the 25bps cut appropriate to mitigate potential financial conditions that could impact the economy, without hindering efforts to reduce household debt-to-income ratios, while offering relief for debt burdens.
