Thailand’s central bank, the Bank of Thailand (BoT). With the upcoming appointment of a new board chairman for the BoT, there is growing pressure to maintain financial stability and ensure the country is equipped to manage its complex economic challenges. This is particularly important amid the ongoing disagreements between central bank governor Sethaput Suthiwartnarueput and politicians, including Prime Minister Paetongtarn Shinawatra, over the best approach to stimulate Thailand’s economy.
At the heart of the debate is the country’s monetary policy, with many calling for interest rate cuts to boost economic growth. The government has proposed Kittiratt Na-Ranong, a former finance minister and loyalist of the ruling Pheu Thai Party, as a candidate for the BoT’s board chairman. However, Mr. Kittiratt’s criticism of the central bank’s current hawkish monetary stance has sparked concerns about potential political interference in the central bank’s operations.
The selection committee has yet to decide on a new chairman, leaving uncertainty hanging over the central bank’s leadership. As businesses and financial experts voice their concerns, the importance of cooperation between the government and the central bank has become a key topic of discussion.
The business sector in Thailand has underscored the need for effective collaboration between the BoT and the government to tackle the nation’s pressing economic challenges. Poj Aramwattananont, vice-chairman of the Thai Chamber of Commerce and the Thai Board of Trade, emphasized that both monetary and fiscal policies should be managed in a way that promotes economic stability while maintaining financial discipline.
One of the primary concerns for businesses is the volatility of the baht, which has been fluctuating and raising alarm, especially in the tourism and export sectors. “An urgent concern is to maintain the baht’s value. Any appreciation will damage the tourism and export sectors,” said Mr. Poj. The strong baht has the potential to erode Thailand’s competitiveness by making exports more expensive and reducing revenues in baht terms, particularly as the strengthening trend is projected to continue until at least the first quarter of 2025.
In light of the global economic environment, with major economies like the United States and China recently cutting interest rates, the Thai Chamber of Commerce has advocated for a similar move by the BoT. “We want the central bank to reduce the policy interest rate to be in line with the world market,” said Mr. Poj. He argued that cutting rates could help ease the financial burden on businesses, making it cheaper for them to borrow money and invest in growth.
Some economists, however, are cautious about the potential impact of cutting interest rates in the Thai context. Kiatanantha Lounkaew, a lecturer at Thammasat University’s Faculty of Economics, pointed out that Thailand’s high household debt levels limit the effectiveness of an interest rate cut. “A reduced interest rate would not help much in situations where household debts remain high, car instalment payments are being suspended, and unsold condo units linger in the market,” he said.
Instead, Mr. Kiatanantha suggested that the BoT’s primary role should be maintaining stability in its monetary policies, allowing fiscal measures introduced by the Finance Ministry to take effect. He also highlighted the need for the central bank to be prepared for external challenges, such as geopolitical tensions in the Middle East and the upcoming U.S. presidential election, which could further complicate Thailand’s economic situation.
Moreover, concerns have been raised about potential political interference in the central bank’s decision-making process. While appointing a new chairman might signal greater coordination between monetary and fiscal policies, Mr. Kiatanantha argued that the BoT’s employees are likely to uphold good governance, making significant political intervention difficult. “The new board chairman may symbolize greater cooperation between the central bank and the government, but I believe the central bank will remain vigilant in protecting its autonomy,” he said.
Another pressing issue in the Thai economy is wage stagnation, which has been exacerbated by rising costs of living. According to Jitipol Puksamatanan, an economist at Finansia Syrus Securities, stagnant wages are the root cause of Thailand’s sluggish economy. He noted that high product prices have made consumers more cautious about spending, further slowing down economic growth.
In this context, Mr. Jitipol argued that cutting interest rates could help alleviate some of the pressure on the BoT by reducing borrowing costs for consumers and businesses. However, he also noted that if interest rates are maintained at their current levels, the central bank may need to explore alternative financial measures or innovations to stimulate the economy. “Other countries have implemented unconventional policies to spur their economies, and Thailand may need to consider similar measures if traditional methods prove insufficient,” he said.
As the selection of a new BoT chairman looms, maintaining the central bank’s independence has become a central theme in the discussions. Montri Mahaplerkpong, chairman of the International Chamber of Commerce (ICC), stressed that the next board chairman should respect the central bank’s autonomy in setting monetary policy. “We trust the central bank knows the most appropriate actions to take, especially after the U.S. Federal Reserve cut interest rates,” he said.
The ICC also highlighted the importance of addressing the net interest rate spread of commercial banks, which refers to the difference between the interest rates charged on loans and the interest rates paid on deposits. Thailand’s current interest rate spread of seven percentage points is higher than that of the U.S., where the spread is around four to five percentage points. “Reducing the spread would help small and medium-sized enterprises (SMEs) by lowering their financial costs,” said Mr. Montri. He emphasized that SMEs are crucial to Thailand’s economic growth and reducing their financial burden should be a priority for the new BoT leadership.
The focus on SMEs was echoed by Sangchai Theerakulwanich, president of the Federation of Thai SMEs, who called for a reduction in the policy interest rate to help these businesses cope with high financial costs. He pointed out that hundreds of thousands of SMEs in Thailand are struggling with liquidity issues, and many have already been forced to close their doors.
“Lowering the interest rate would reduce the financial burden on SMEs and give them a better chance to survive in a challenging economic environment,” said Mr. Sangchai. He also expressed concern that while commercial banks and financial institutions are posting higher profits, SMEs are bearing the brunt of the economic downturn. “We need to ask whether the central bank is prioritizing the stability of the financial system at the expense of SMEs and the broader economy,” he added.
The Federation of Thai SMEs is advocating for policies that would make it easier for businesses to access loans and maintain cash flow. Mr. Sangchai argued that helping SMEs remain viable is crucial to driving the Thai economy forward, as these businesses form the backbone of the country’s economic structure.
The appointment of the next BoT board chairman is seen as a pivotal moment for the future of Thailand’s economy. While there are differing views on the best approach to monetary policy, the consensus among economists and business leaders is clear: the central bank must be allowed to operate independently, free from political interference, while working in close coordination with the government to address the country’s economic challenges.
Thaniwan Kulmongkol, president of the Thai Restaurant Association, added that beyond monetary policy, the new leadership at the BoT should work with commercial banks to relax loan criteria for SMEs, particularly those in the service sectors like restaurants, which were severely impacted by the pandemic. “Restaurant operators are finding it difficult to access loans, and we need more support from financial institutions to recover,” she said.
As the selection process for the new BoT chairman continues, the business community and economic experts will be watching closely to see how the central bank’s policies evolve. At stake is the delicate balance between ensuring financial stability and fostering the economic growth needed to lift Thailand out of its current stagnation.
