Thai PM seeks emergency rate cut, pressuring country's central bank

MANILA (Bloomberg): Thailand’s Prime Minister Srettha Thavisin asked the central bank to urgently hold an unscheduled meeting of its Monetary Policy Committee to cut interest rate, saying the latest data indicated that the nation’s economy was in a crisis.

"I would like to implore the MPC to urgently call a committee meeting to consider reducing interest without waiting for a scheduled meeting,” Srettha posted on X late Monday.

The rate-setting panel headed by the Bank of Thailand Governor Sethaput Suthiwartnarueput isn’t scheduled to hold its regular meeting until April 10. Asked to comment on Srettha’s call for urgent meeting, a representative for the BOT said the bank won’t give a response.

Srettha, who is also the finance minister, said he had no power to instruct the central bank as it’s an autonomous institution, but BOT shouldn’t disregard people’s livelihood and problems.

"April is almost two months away, and I urge them to reconsider the decision,” Srettha told reporters on Tuesday after a cabinet meeting.

The standoff on policy rate is the latest instance of a discord between the Thai premier and the central bank chief after the duo publicly disagreed on the government’s plan for a cash stimulus and the assessment of South-East Asia’s second-largest economy. The rift lays bare the diverging views of key policymakers in running the $500-billion economy, spooking investors.

The baht fell as much as 0.5% on news of Srettha calling for an out-of-cycle MPC meeting to cut borrowing costs that are at a decade high. The currency has gone from being the best performer in Asia in the final quarter of 2023 to the second-worst this year as foreign investors continued to shun Thai assets.

"This call represents rising headwinds for the baht given the apparent escalation of pressure on the central bank to cut before the next meeting in April,” said Moh Siong Sim, a currency strategist at Bank of Singapore Ltd. "The baht is likely to remain under pressure in the near term amid a firm dollar backdrop.”

Catch-22

The simmering tensions puts the central bank independence in spotlight in a country where friction between the government and the monetary authority isn’t unusual. In 2001, then Prime Minister Thaksin Shinawatra fired the central bank governor after the official defied his call for higher interest rates.

"This is an important issue which puts the BOT in a bit of a catch-22 situation,” said Euben Paracuelles, chief Asean economist at Nomura Holdings Inc. "The economy is clearly weakening as confirmed by the GDP data, and therefore warrants a monetary response. But the BOT also doesn’t want to be seen as acting on this seemingly strengthening push from the PM to cut rates.”

While the BOT hasn’t reacted to the disappointing GDP data on Monday, an assistant governor previously said authorities are willing to consider lowering borrowing costs if the weakness in the economy is persistent and not transitory.

The rate-setting panel left interest rate unchanged at 2.5% on Feb. 7, ignoring Srettha’s call the prior day for a 25-basis-point cut.

Gross domestic product expanded 1.7% in the fourth quarter from a year ago, weaker than the median 2.6% forecast by economists surveyed by Bloomberg, data released on Monday showed. Output shrank 0.6% quarter-on-quarter, against a forecast of 0.1% drop. For the full year 2023, the economy grew 1.9%, extending a decade of average sub-2% growth.

Thailand is currently witnessing a spell of deflation, with negative consumer price readings for four months since October. The BOT argues that the negative inflation is due to state subsidies and not because of demand deficiency, another point of contention with Srettha.

Factory output has shrunk for 15 months in a row as exports took a knock due to sluggish demand for automobiles, electronics and other products.

Thailand’s tepid economic recovery also bolsters the case for Srettha’s plan to shore up growth with a $14-billion in cash handouts to citizens to boost consumption - an idea that’s been criticized by economists and the central bank as inflationary and one that poses a risk to fiscal consolidation. -- ©2024 Bloomberg L.P.