Sethaput Suthiwartnarueput indicates that tightening financial conditions may lead to an adjustment in policy.
The Bank of Thailand (BoT) is prepared to lower interest rates if the economic and financial landscape necessitates such a move, according to governor Sethaput Suthiwartnarueput. He emphasized during a media briefing that monetary policy can be modified to ensure stability amid concerns over the effects of financial markets on the wider economy.
Tight liquidity or credit conditions could be a catalyst for interest rate changes. However, the current outlook related to the economy, inflation, and financial stability aligns with expectations.
“We are ready to make necessary adjustments,” he stated. “If the outlook changes, we are prepared to modify policy rates.”
Sethaput acknowledged that banks have reduced loan growth amid heightened credit risks and an uneven economic recovery, which is raising concerns. He noted that, for instance, banks have curtailed auto loan growth due to increased credit risk from intense pricing competition in the automotive sector, significantly impacting the used-car market.
Additionally, banks anticipate elevated credit risks for small business loans that may not fully cover their credit costs, leading to a slowdown in SME loan growth.
The BoT maintained its key interest rate at 2.50% for the fifth consecutive meeting last Wednesday, asserting that the current rate is neutral.
There have been increasing calls from the ruling government for a rate cut to spur economic activity. However, Sethaput has remarked that lower rates would minimally impact an economy in need of substantial structural reforms.
Policymakers expressed their intent to monitor whether the new Prime Minister will amend economic stimulus strategies, particularly referencing the 500-billion-baht digital wallet initiative, a key policy of the administration.
Former Prime Minister Thaksin Shinawatra recently reaffirmed the necessity of the digital wallet, despite central bank criticisms regarding its costliness, stating it is crucial for invigorating the sluggish economy.
Enhancing Liquidity
In his “Vision for Thailand” address, Thaksin proposed various strategies to rejuvenate the economy, including enhancing liquidity and boosting banks’ confidence in lending. He recommended that the central bank reduce its bond sales that are currently draining liquidity from the market.
Thaksin also suggested halving the fees collected by the central bank from commercial banks, now at 0.46% of deposits, to support the Financial Institutions Development Fund (FIDF). He claimed this measure would improve banks’ liquidity and stimulate lending.
The FIDF, established in 1985 to safeguard financial stability, has a current debt of 580 billion baht, incurring an interest of approximately 16 billion baht annually. If the fee collection rate were cut to 0.23%, the interest burden would rise by around 5 billion baht per year, according to central bank estimates.
Sethaput refrained from commenting on some of Thaksin’s additional proposals, such as debt reductions for struggling businesses.
Nonetheless, he emphasized that the central bank is ready to collaborate with the Ministry of Finance despite differing viewpoints on certain matters.
Earlier this year, Ms. Paetongtarn referred to central bank independence as an “obstacle” to economic growth, echoing calls from within her party for rate reductions.
“Our independence comes with accountability,” Sethaput stated, affirming the BoT’s willingness to collaborate with all parties involved.
