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The hiking of the policy interest rate must not be “too slow” to avoid aggressive hikes later, warns the Bank of Thailand’s governor.
“Hiking too slow is not good,” said the central bank’s governor Sethaput Suthiwartnarueput while speaking at a seminar.
“Our interest rate is now the lowest in the region while our inflation rate is one of the highest in the region,” he added.
Sethaput pointed out that there is a need to hike the interest rate because core inflation has “significantly” increased from 0.2 per cent in 2021, to more than two per cent currently.
The BoT’s Monetary Policy Committee voted 4-3 last Wednesday to hold the country’s benchmark lending rate at a record low of 0.5 per cent. The MPC’s next meeting is in August.
Headline inflation increased from 4.65 per cent in April to 7.1 per cent in May while core inflation reached 2.28 per cent.
Sethaput explained that Thailand’s monetary policy has been very accommodating for a long time because of the impacts of the Covid-19 pandemic. He said the economy is recovering and the need for a very accommodative monetary policy is dissipating.
He worries that there will be more need to aggressively increase the interest rate which is something that should be avoided, he believes.
“We do not want to see that,” he said. “The hike must not be too slow to avoid being aggressive later.”
Sethaput also said there is no need to follow what other central banks are doing since the consideration of when and how to hike the policy interest rate should be based on the domestic situation such as the economic recovery and inflation.
“Just because the Fed (US Federal Reserve) is increasing, does not mean that we have to, our issues are our issues,” he said.
For fiscal measures, Finance Minister Arkhom Termpittayapaisith told reporters at the ministry on Monday the need for blanketed measures, such as the Half-Half co-payment scheme, is lessened because the impacts of the Covid pandemic are much lower and the economy is already recovering.
There is also less budget to go around at the moment.
“The government is facing limitations in terms of the budget that can be used for stimulus measures as the loan that was being used to lower the economic impacts is now not down to around 40 billion baht,” he said.
The government made 1.5 trillion baht loans to counter the impacts of the pandemic between 2020 and 2021. Last Friday, the Royal Gazette announced that the government is taking out another 13 billion baht loan from Japan for the same purpose.
Arkhom said it is time for fiscal policy to normalize and new measures will be targeted, especially for groups that are most affected by rising energy prices.
“The impacts from the Covid pandemic is much less now and the economy is now operating normally so we should lift these measures and this is also being done in other countries,” he said.
As for fiscal measures to tackle inflation, Arkhom said there are countries that did not come out with any measures to help their people from inflation and they are allowing the market mechanisms to do their work.
“One day when demand increases, the supply will increase and product prices will go down by themselves,” he said.