As the Bank of Thailand (BOT) comes under growing political pressure to cut interest rates, most analysts expect the monetary authority to resist calls for any off-cycle easing to support the economy.
The deepening rift between Prime Minister Srettha Thavisin and the central bank over monetary policy direction is bound to hurt investor confidence, though the prospect of Dr Sethaput Suthiwartnarueput’s exit as Bank of Thailand governor is slim, according to analysts from Barclays Bank and Nomura Holdings.
Mr Srettha, who has been at loggerheads with the central bank on the approach to revive South-east Asia’s second-largest economy since taking power in August, ratcheted up tensions on Feb 19 with a late night call for an emergency monetary policy review to lower borrowing costs. The former property tycoon is pushing for a quarter-point rate cut after data showed fourth-quarter economic output was weaker than expected.
BOT’s Monetary Policy Committee, which earlier in February kept rates steady at a decade high of 2.5 per cent in a split decision, is now scheduled to meet only on April 10. The last time BOT held a special rate meeting was during the early days of the pandemic in 2020.
“We continue to think that the BOT will cut rates at its next meeting in April due to the significant slowdown in growth,” Ms Shreya Sodhani, an analyst at Barclays said, adding that she does not see the bank holding an unscheduled meeting. Policymakers “held rates in the face of the Prime Minister calling for cuts at their previous meeting, which shows that it is unlikely that they flip views now”.
Mr Euben Paracuelles of Nomura also does not see BOT yielding to political pressure. But he sees rising possibility of an easing in April, with a total of 100 basis points cut in 2024.
The BOT is “in a bit of a catch-22 situation”, Mr Paracuelles said, noting that it is caught between the need to act on weak economic data and the need to stand its ground amid the Prime Minister’s strengthening push to cut rates. “This generates some uncertainty and the risk is that policy credibility is undermined.”
The fallout from the differences is already being felt in Thailand’s equity as well as bond markets, amid uncertainty that policy can change in either direction. Investors have pulled out nearly US$1.5 billion (S$2 billion) from Thai stocks and bonds so far in 2024 – the most in South-east Asia.
Mr Srettha’s push for a rate cut is the most overt bid by a Thai prime minister to influence monetary policy since 2013, when members of Ms Yingluck Shinawatra’s administration pressured then governor Prasarn Trairatvorakul to cut rates. Firing a Thai central bank chief is rather difficult after a 2008 amendment to the central bank law conferred BOT more independence.
Dr Sethaput, a former World Bank senior economist and Yale University alumnus, was named as BOT governor for a five-year term in July 2020. He had been a member of the rate panel since 2014 before being picked by the then military-backed government of Prayut Chan-o-cha for the top job.
Ms Lavanya Venkateswaran, senior Asean economist at OCBC Bank in Singapore, sees a low possibility of Dr Sethaput being let go on account of the differences.
“The best outcome is that both parties continue to voice their views, even if publicly, but allow for data and time to dictate the narrative,” Ms Venkateswaran said. BLOOMBERG
