(Bloomberg) -- Thailand’s new government is piling pressure on the central bank, with its finance chief pushing for lower interest rates and a higher inflation target to help stem the baht’s strongest quarter in more than 25 years.
“It’s time to talk about the inflation target, which will lead to policy rate and lead to supporting government polices. They are all related,” Finance Minister Pichai Chunhavajira told reporters on Wednesday in Bangkok, on the sidelines of an event marking the start of the government’s cash handout program. The finance chief said he wants to see inflation around 2%, which is a typical target among developing nations, compared with Thailand’s 1%-3% band.
Pressure on Thailand’s central bank has risen in recent days as the baht’s 12% surge against the dollar this quarter threatens the exports and tourism sectors that comprise the bulk of Southeast Asia’s second-largest economy. Calls for the BOT to curb the currency’s strength by intervention and monetary easing has grown even louder after the US Federal Reserve kicked off an easing cycle with a half-point cut last week.
“We have failed to meet the low end of the target,” Pichai said. “Our inflation is below 1%. This is something we need to look at,” the finance minister said before his scheduled meeting next week with Bank of Thailand Governor Sethaput Suthiwartnarueput. Price growth in Thailand has stayed below 1% in 15 of the past 16 months.
The central bank separately said on Wednesday that it’s ready to manage when the currency movement is “unusual” to minimize the impact on businesses. Governor Sethaput, meanwhile, continued to push back against rate cuts, saying last week that the BOT doesn’t need to follow the Fed’s move.
Deputy Finance Minister Paopoom Rojanasakul echoed Pichai’s comments that Thai inflation is unlikely to be within target anytime soon as currency gains are surpassing neighboring countries while economic growth continues to languish. Thailand’s sub-2% annual gross domestic product growth in the past decade compares with 5% or higher expansion of its neighbors.
“The best way is by joining hands,” Pichai said, adding fiscal and monetary authorities must collaborate to get Thailand through “this chronic economic problem.”
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