(Bloomberg) -- Thailand’s central bank is right in persisting with an inflation target range of 1 to 3%, according to its rate panel, in a stance likely to ratchet up tensions with a government keen on a higher band to create room for monetary easing.
The price goal has effectively anchored medium-term expectations, and can accommodate supply-side fluctuations such as the recent rise in global energy prices, according to the minutes of August meeting of the Monetary Policy Committee released Wednesday. Bank of Thailand Governor Sethaput Suthiwartnarueput chairs the seven-member MPC.
The 1%-3% target jointly set by the BOT and the finance ministry also helped weaken the persistence of inflation, allowing shocks to quickly dissipate, according to the MPC. The rate body also counts two deputy governors and four members picked outside the central bank by the BOT board. The terms of the BOT chairman and two board members are set to end this month.
“Going forward, the Thai economy will face more relative price changes from supply-side fluctuations and structural factors,” the rate-setters said. “A flexible inflation target range, therefore, would play a crucial role in maintaining medium-term price stability.”
The MPC’s backing for the BOT may make it tough for Finance Minister Pichai Chunhavajira to convince the monetary authority to raise the inflation target —an idea he pushed for under the administration of Srettha Thavisin. Pichai’s calls months ago to lift the inflation goal as price gains remain below target was seen as a way to nudge the BOT to cut borrowing costs.
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The finance ministry and BOT officials are scheduled to meet later this month to set the target for 2025. Governor Sethaput, who had pushed back against calls from Srettha for rate cuts, had said that the inflation goal remains appropriate for Thailand’s economic outlook.
Another way for the government to exert influence on the central bank is through the ongoing selection of a new BOT chairman and two board members. While they couldn’t dictate monetary policy, they evaluate the performance of the governor and have a say in picking the external members of the MPC.
BOT has kept the policy rate at a decade high 2.5% since the fourth quarter even as inflation slipped into the negative territory through the first three months of 2024. Sethaput said last week the monetary authority is ready to adjust borrowing costs if needed, while maintaining policy space for unexpected risks.
Earlier this week, Prime Minister Paetongtarn Shinawatra — daughter of Thaksin Shinawatra — reaffirmed her commitment to implement a cash handout in line with a pledge to lift the nation from an “economic crisis.” The new premier had previously described the central bank’s autonomy as an “obstacle” to reviving the economy.
Read: Thai Central Bank May Face More Rate-Cut Pressure From New PM
The MPC also argued that the current price trend doesn’t indicate signs of deflation, and that sluggish prices could help ease elevated cost of living, particularly for low-income households. The panel expects price gains to return to the 1%-3% band by the end of this year before stabilizing at the lower bound of the target range.
Consumer prices probably rose 0.4% in August, staying below the BOT’s target band for a third straight month, according to a Bloomberg survey of economists ahead of Thursday’s release.
(Updates with rate panel composition in third paragraph, Pichai staying on as finance minister in fifth paragraph.)
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