(Bloomberg) -- The Thai central bank’s benchmark interest rate is consistent with policymakers’ growth and inflation outlook, Governor Sethaput Suthiwartnarueput said as he remains unmoved by government calls for rate cuts.

“The current rate is supportive for economic recovery and financial stability,” Sethaput said Thursday in Bangkok in his first meet-the-press event this year. The Bank of Thailand is ready to adjust if the situation changes and it’s not closing the door on possibilities, he said.

The BOT will continue to be “outlook dependent” in deciding the policy rate, currently at a decade high of 2.5%, the governor said, adding that inflation is likely to average 1.1% in the second half of the year.

In a wide-ranging briefing that ran for almost three hours, the governor said he’s worried about the stubbornly high household debt ratio in Thailand of above 90% and said that it’s an issue that complicates monetary policy decision. Access to lending is also a “top of mind” concern as the country’s gross domestic product growth potential has slumped to 3%.

Sethaput has kept a fairly low profile with media amid escalating tensions with Prime Minister Srettha Thavisin’s government, which wants the central bank to cut the rate and to raise the 1%-3% inflation target. But in a June interview with Bloomberg, the governor strongly defended the current rate policy and price goal, questioning the government’s cash stimulus plans.

“If we raised the inflation target, it may lead to higher inflation expectations and higher yields” and may only lead to more problems, Sethaput said, urging caution in pursuing the plan. The inflation goal will be agreed by the BOT and the Finance Ministry likely in the fourth quarter, he said, declining to respond when asked whether he thinks the lower-end of the BOT’s 1%-3% inflation target band was too low.

Deputy Finance Minister Paopoom Rojanasakul said last week that 1% was too low to be the floor of the target and can cause stagnation, and the ministry is considering taking agencies to task if inflation remains out of range.

The standoff has added to investor concerns over political uncertainty in Thailand, prompting global funds to pull out around $4.8 billion from the nation’s stocks and bonds this year. The baht is among the biggest losers during the period, in part due to the dollar’s strength.

The governor cited interest-rate differential for the weaker baht and bonds as well as declining allure of the Thai stock market. The BOT isn’t targeting a particular level for the currency, Sethaput said, while acknowledging that baht volatility has increased and that excessive currency weakness isn’t good.

Blunt Tool

The window for the BOT to cut rates this year is narrowing, according to Goldman Sachs Group Inc., as tailwinds from delayed government spending will help support growth while price risks will rise due to diminishing energy subsidies. A growing number of economists, including from Goldman and CIMB Group Holdings Bhd., have pushed their forecasts for monetary easing to the fourth quarter of this year at the earliest.

The central bank last month left its key rate unchanged for a fourth straight meeting. That came even after the government revived calls for a quarter-point cut, saying the rate is “too high” and not fully aligned with the nation’s strategy to spend and boost growth. Still, the World Bank on Wednesday supported the central bank’s wait-and-see stance amid inflationary and fiscal uncertainties.

Measures other than cutting borrowing costs and those that are more targeted may be more effective in pulling Southeast Asia’s second-largest economy out of a cycle of slower growth, according to Sethaput, who described interest rates as a “blunt tool.”

Taking GDP expansion back to the 4%-5% level after more than a decade of sub-2% average annual growth is unlikely without a fundamental restructuring of the economy, he said. Some Thai industries, he said, are suffering from competition with Chinese products, noting that as a key risk for the economy.

The government is pushing ahead with its flagship digital wallet policy to give roughly 500 billion baht ($13.7 billion) in cash to almost all adult citizens to revive consumption.

Srettha argues that the money will create a “whirlwind” to lift the economy, which has lagged that of neighbors. His government also sought to reassure that it won’t crowd out companies in funding the dole-out.

Read: Thailand Says Rise in State Debt Won’t Crowd Out Private Sector

The so-called digital wallet — the main election pledge of the ruling Pheu Thai party — has been dogged by controversy over the government’s shifting stance on how to finance the program. After initially proposing to cover about 55 million Thais and financing it through the state budget, Srettha’s cabinet decided to exclude affluent Thais and has been reworking funding options. The premier has pledged to distribute the cash in the final quarter of this year.

Stimulus measures can lift growth only in the short term, the governor said. “We have done a lot of that in the past. We want to see restructuring steps, which can lift our competitiveness.”

Sethaput said the BOT needs to find a balance as it decides on the key rate under the flexible inflation targeting regime. “It’s not a mechanical thing. If we can do something like that, we probably don’t need a central bank. We can use AI,” he said.

--With assistance from Pathom Sangwongwanich, Adrian Kennedy and Cecilia Yap.

(Updates with more comments from the governor from fourth paragraph.)

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