Government Pushes for Rate Cut Amid Economic Struggles
PUBLISHED: 16 Sep 2024 at 21:50
The government is set to nominate a loyalist to the ruling party, recognized for his criticism of the central bank governor, for the position of chair of the Bank of Thailand (BoT). This move follows ongoing tensions regarding interest rates, as sources reveal the government’s intent to influence the central bank’s policies.
The Pheu Thai Party has endorsed 66-year-old former deputy premier and finance minister Kittiratt Na Ranong for the chairmanship. Mr. Kittiratt’s nomination has not yet been publicly reported.
During his tenure as finance minister from 2012 to 2014, Mr. Kittiratt frequently clashed with the central bank governor over monetary policy decisions.
In recent months, he has supported the government’s push for a rate cut to reignite an economy that grew by just 1.9% last year.
Following the Pheu Thai government’s return to power in September 2023, the BoT raised the benchmark rate for the eighth consecutive meeting to a decade-high of 2.50%, where it remains, despite appeals for a reduction.
Mr. Kittiratt has yet to respond to requests for comments, while the BoT has nominated two candidates for the chair position without disclosing their identities. The permanent secretary of the finance ministry also refrained from commenting.
A seven-member panel independent of the central bank will decide which candidate to appoint in the coming weeks, pending approval from the finance minister, cabinet, and the king.
While the chair cannot influence the central bank’s interest rate policy, they will oversee the selection of the monetary policy committee, which includes the governor, two deputy governors, and four external experts. Additionally, the new chair will play a crucial role in selecting the next BoT chief when the current governor’s term ends in September 2025.
Ongoing Rate Debate
The BoT insists its current policy settings are neutral, attributing economic growth below potential to structural issues.
Governor Sethaput Suthiwartnarueput has argued that while a rate cut may offer a temporary economic boost, it is not a sustainable solution due to potential long-term consequences.
The central bank’s steadfastness on maintaining rates has faced criticism, including remarks from Pheu Thai’s leader Paetongtarn Shinawatra, who referred to the central bank’s independence as a “barrier” in May.
On Monday, Commerce Minister Pichai Naripthaphan reiterated calls for the central bank to lower interest rates in a bid to enhance liquidity as the government seeks to revive growth in Southeast Asia’s second-largest economy.
The three candidates nominated for the chair position will undergo qualification checks by the BoT, a process expected to take about two weeks, according to selection committee head Sathit Limpongpan.
“The committee will convene after the reviews and will have a subsequent meeting to reach a decision before mid-October,” he stated.
