BANGKOK: With the Thai central bank spurning a call for an emergency interest rate cut, Prime Minister Srettha Thavisin is taking steps to ramp up state spending and public investment to prop up growth in South-East Asia’s second-largest economy.
On Tuesday (Feb 27) , the cabinet agreed to bring forward a parliament vote on the much-delayed budget bill by two weeks, a move that will clear the way for disbursing of funds for new investments from April. All state-owned enterprises were ordered last week to "front-load” their more than 240 billion baht (US$6.7 billion) investment.
The push to accelerate state spending comes after Srettha’s efforts to lift economic growth from sub 2% rate over the past decade have run into hurdles including delays to his signature multi-billion cash handout plan for most Thais and parliament approval for the 3.48 trillion baht budget.
His calls to cut interest rate to provide immediate relief to borrowers were also rebuffed by the Bank of Thailand.
"A quicker budget should definitely help demand in the economy - mostly on the investment front as on the government consumption side, spending was ongoing even without the passage of the budget,” said Shreya Sodhani, an analyst at Barclays Bank Plc.
A decline in public spending and investment was a key reason for a contraction in gross domestic product in final quarter of from the previous three months, while private consumption expanded 7.4%. Government spending dropped 7.2% in the first four months of the fiscal year that began on Oct. 1 as lawmakers have yet to ratify the budget that was finalized by Srettha’s cabinet after it took power about six months ago.
A weaker-than-expected recovery in tourist spending and sluggish exports have prompted analysts to trim Thai growth forecasts, while betting the central bank may pivot to easing earlier than previously thought.
The weakening economic footprint will likely support the case for the government to renew its rate cut campaign.
The central bank raised its one-day repurchase rate by a total of 200 basis points during a yearlong tightening cycle that boosted borrowing costs to a decade high of 2.5%.
Srettha reiterated his call for an emergency rate cut after data showed growth slowed to 1.9% last year from 2.6% a year earlier but his demand was rejected by BOT Governor Sethaput Suthiwartnarueput.
The premier has vowed to continue his push for lower interest rate. The rate panel is next scheduled to meet on April 10.
"I wouldn’t put it past the government to amp up the pressure again before the next meeting in April, especially given the dissenting votes we saw at the previous meeting, which likely will only encourage the government to press harder,” said Miguel Chanco, an economist at Pantheon Macroeconomics Ltd.- Bloomberg
