Experts and industry leaders are urging the new Bank of Thailand (BoT) board chairman to prioritize the stability of the financial system and equip the country to face pressing economic challenges.
As tensions rise between central bank governor Sethaput Suthiwartnarueput and politicians, including Prime Minister Paetongtarn Shinnawatra, regarding potential interest rate cuts to invigorate the economy, Kittiratt Na-Ranong has been nominated as a candidate for the BoT chairman position.
Mr. Kittiratt, a former finance minister and economic advisor, has expressed criticism towards the central bank’s strict monetary policies, maintaining loyalty to the ruling Pheu Thai Party.
The selection committee did not reach a resolution regarding the new board chairman in their latest meeting, with no date set for a follow-up discussion on candidates.
Business leaders emphasize the need for enhanced collaboration between the central bank and the government to effectively tackle economic issues, particularly currency volatility, according to Poj Aramwattananont, vice-chairman of the Thai Chamber of Commerce.
“Effective management of both monetary and fiscal policies must be ensured while upholding financial discipline,” noted Mr. Poj.
The chamber advocates for a unified approach between the central bank and the Finance Ministry to address the ongoing fragility in the Thai economy.
“Maintaining the value of the baht is an urgent priority, as its appreciation could adversely affect our tourism and export sectors. The current strengthening trend may continue until early 2025, potentially impacting our price competitiveness,” added Mr. Poj.
The chamber also urges the central bank to lower policy interest rates to align with global standards, following recent cuts in the US and China aimed at easing business costs.
KNOW YOUR ROLE
Kiatanantha Lounkaew from Thammasat University’s Faculty of Economics emphasized that the central bank should strive to balance Thai interest rates with those set abroad, as global central banks are aggressively reducing their rates, widening the gap between Thai and international rates.
“In Thailand’s context, lowering interest rates might have limited effects on economic growth because of the high levels of household debt. Numerous car loans are being suspended, and many condo units remain unsold. Lower interest rates alone won’t significantly address these issues,” he stated.
“The central bank’s primary focus should be on ensuring stable monetary policies to support the effectiveness of fiscal measures introduced by the Finance Ministry,” he added.
Kiatanantha also addressed the necessity for the central bank to prepare for ongoing foreign challenges, including geopolitical tensions in the Middle East and the upcoming US presidential election.
He highlighted that merely appointing a new board chairman would not guarantee a shift towards pro-government policies, as the central bank’s integrity remains significant.
“If the new chairman symbolizes better coordination between monetary and fiscal policies, that would positively influence market sentiment. However, it’s essential for the central bank and its staff to maintain their commitment to good governance,” he remarked.
Economist Jitipol Puksamatanan pointed out that stagnant wages represent a significant hurdle for the Thai economy amidst soaring living costs. He noted that rising product prices have led consumers to curtail spending, resulting in a prolonged economic slowdown.
“A singular interest rate cut could alleviate some pressure on the central bank’s policies. If rates remain unchanged, innovative financial measures will be essential to stimulate the economy,” Jitipol suggested, noting that some countries are now employing unconventional policies to drive economic growth.
“The central bank chairman should possess the expertise to collaborate effectively with associated agencies to streamline processes. A diverse board is essential to safeguard national interests,” he concluded.
A FREE HAND
Montri Mahaplerkpong, chairman of the International Chamber of Commerce (ICC), asserted that the new board chairman must ensure the central bank operates independently of political pressures.
“The chair should honor the central bank’s autonomy in monetary policymaking,” he stated.
“We trust the central bank to take the most suitable actions in light of recent interest rate cuts by the US Federal Reserve,” he continued.
The ICC has called for increased scrutiny of the net interest rate spread among commercial banks, which is critical for their profitability and can have implications for small and medium-sized enterprises (SMEs).
Montri indicated that the current 7 percentage point spread in Thailand should be reduced, in comparison to the US’s 4-5 percentage points, to support SMEs, which are often reliable borrowers.
“Lowering this spread will lower financial costs for SMEs in the long run,” he emphasized.
SAVING SMES
In light of the economic challenges, the new board chairman should prioritize facilitating better financial conditions for SMEs by advocating for a reduction in the policy rate, according to Sangchai Theerakulwanich, president of the Federation of Thai SMEs.
Sangchai suggested Thailand should adopt similar measures to the US Federal Reserve by lowering its policy rate.
“Reducing interest rates will ease financial burdens and enable businesses to thrive even with sluggish economic conditions,” he stated.
“With hundreds of thousands of SMEs in Thailand, providing them with necessary support could significantly drive the national economy,” he added.
Sangchai mentioned that many SMEs have already shut down due to liquidity issues, while banks are reaping substantial profits.
He questioned whether the central bank’s policies aim to stabilize the financial system at the expense of SMEs and overall economic health.
Thaniwan Kulmongkol, president of the Thai Restaurant Association, noted that the restaurant sector has struggled since the pandemic, and the current economic stagnation hampers recovery efforts.
She called for the central bank, in conjunction with commercial banks, to ease lending criteria to assist SMEs, particularly in the restaurant industry.
“Accessing loans is currently challenging for restaurant operators,” she remarked.
