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 GDP 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 on Monday (Feb 19).

The rate-setting panel headed by the Bank of Thailand (BOT) governor Sethaput Suthiwartnarueput isn’t scheduled to hold its regular meeting until April 10. Asked to comment on Srettha’s call for an 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 US$500-billion economy, spooking investors. 

The baht fell as much as 0.5 per cent 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.

A NEWSLETTER FOR YOU

Friday, 8.30 am

Asean Business

Business insights centering on South-east Asia's fast-growing economies.

Sign Up

“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. “The baht is likely to remain under pressure in the near term amid a firm dollar backdrop.”

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. “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 per cent on Feb 7, ignoring Srettha’s call the prior day for a 25-basis-point cut.

Gross domestic product expanded 1.7 per cent in the fourth quarter from a year ago, weaker than the median 2.6 per cent forecast by economists surveyed by Bloomberg, data released on Monday showed. Output shrank 0.6 per cent quarter-on-quarter, against a forecast of 0.1 per cent drop. For the full year 2023, the economy grew 1.9 per cent, extending a decade of average sub-2 per cent 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 US$14-billion in cash handouts to citizens to boost consumption – an idea that’s been criticised by economists and the central bank as inflationary and one that poses a risk to fiscal consolidation. BLOOMBERG