Pundits advocate stability at BoT

Economists and leading executives are calling on the new Bank of Thailand board chairman to maintain stability of the financial system and ensure the country can tackle its economic challenges.
Amid the ongoing spat between central bank governor Sethaput Suthiwartnarueput and politicians, including Prime Minister Paetongtarn Shinnawatra, over cutting interest rates to stimulate the economy, the government submitted Kittiratt Na-Ranong as a candidate for the Bank of Thailand’s board chairman.
Mr Kittiratt, a former finance minister and an economic advisor to former premier Srettha Thavisin, is a critic of the central bank’s hawkish monetary policy and is loyal to the ruling Pheu Thai Party.
The selection committee did not reach a conclusion on a new board chairman on Tuesday. The date for their next meeting to consider candidates is undecided.
The business sector prioritises greater cooperation between the central bank and the government in addressing economic challenges, including managing baht volatility, said Poj Aramwattananont, vice-chairman of the Thai Chamber of Commerce and Thai Board of Trade.
“Appropriate monetary and fiscal policy management should be deployed while maintaining financial and fiscal discipline,” said Mr Poj.
The chamber wants the central bank and the Finance Ministry to work together to solve the problems of the Thai economy, which is in a fragile state, he said.
“An urgent concern is to maintain the baht value as appreciation will damage the tourism and export sectors. A continued strengthening trend may weaken the country’s price competitiveness or reduce export revenue in baht terms, as the trend is expected to continue until the first quarter of 2025,” said Mr Poj.
The chamber also wants the central bank to reduce the policy interest rate “to be in line with the world market”, as the US and China recently slashed their rates to reduce costs for business, he said.
Kiatanantha Lounkaew, a lecturer with Thammasat University’s Faculty of Economics, said the central bank’s focus should be creating a balance between Thai interest rates and overseas rates, as central banks globally are aggressively cutting their rates, further widening the gap between Thai and global interest rates.
“In the Thai context, interest rate reduction would have a limited impact on boosting the economy. As household debts remain at a high level, many car instalment payments are being suspended and condo units remain unsold. A reduced interest rate would not help much in these situations,” he told the Bangkok Post.
“The central bank’s role should be maintaining the stability of monetary policies to allow fiscal measures introduced by the Finance Ministry and the government to be effective in lifting the economy.”
The central bank should prepare measures to address ongoing and upcoming foreign challenges, including escalating tensions in the Middle East and next month’s US presidential election, said Mr Kiatanantha.
In terms of political intervention into the central bank’s role, the appointment of a board chairman alone will not be powerful enough to convince other board members to implement pro-government policies, he said.
“If the new board chairman is a symbol of greater correlation of monetary and fiscal policies, that’s good for sentiment. But I think the central bank and its employees are vigilant and will uphold good governance, making political intervention difficult,” said Mr Kiatanantha.
Jitipol Puksamatanan, an economist at Finansia Syrus Securities, said stagnant wages is the biggest issue facing the Thai economy as expenses have skyrocketed. Higher product prices have caused people to spend sparingly, keeping the economy sluggish for many years, he said.
“If interest rates are cut once, it would reduce pressure on the central bank. If the interest rate is maintained, new financial measures or innovations are needed to drive the economy and keep it from slowing down,” said Mr Jitipol, adding some countries have introduced unconventional policies to stimulate their economies.
“The board chairman of the central bank should have the knowledge and ability to coordinate with relevant agencies to smooth work processes. The board should be diverse and protect the country’s interests.”
The next board chairman must allow the central bank to work freely without political intervention, said Montri Mahaplerkpong, chairman of the International Chamber of Commerce (ICC).
“The chair should respect the central bank’s autonomy in setting monetary policy,” he said.
“We are confident the central bank knows the most appropriate actions to take after the US Federal Reserve cut interest rates.”
The ICC called on authorities to pay more attention to the net interest rate spread of commercial banks, which is the difference between the interest rates for loans and deposits, as it is crucial to banks’ profitability.
Mr Montri said a high spread affects small and medium-sized enterprises (SMEs), which are good debtors with high potential to repay debts, as banks lend at higher rates than they pay for deposits.
The current interest rate spread in Thailand is 7 percentage points, which should be reduced, he said. The spread in the US is 4-5 percentage points.
“An adjustment will help SMEs in the long term because they will have lower financial costs,” said Mr Montri.
The new board chairman should focus on helping SMEs better cope with heavy financial burdens by prompting the central bank governor to consider cutting the policy rate, said Sangchai Theerakulwanich, president of the Federation of Thai SMEs.
He suggested Thailand follow the Fed’s lead by cutting its policy rate.
Lower interest rates will reduce financial costs, which will eventually help businesses operate in a sluggish economy, said Mr Sangchai.
“SMEs are shouldering high financial costs. They need help to get through this problem,” he said.
Cutting the policy rate should help to stimulate the Thai economy, said Mr Sangchai.
Hundreds of thousands of businesses in Thailand are SMEs. If they receive help, they will be a powerful force to drive the Thai economy, he said.
Mr Sangchai said many SMEs have closed because they lacked liquidity. On the contrary, commercial banks and financial institutions are earning higher profits and getting healthier, he said.
“We would ask whether the central bank is maintaining the country’s financial stability at the cost of SMEs and the economy,” said Mr Sangchai.
Thaniwan Kulmongkol, president of the Thai Restaurant Association, said the restaurant industry was damaged by the pandemic and amidst the recovery this year, the economy has been stagnant.
She urged the central bank, in collaboration with commercial banks, to relax the loan criteria to help SMEs, including restaurant operators, in accessing loans.
“It is quite difficult for restaurant operators to access loans,” said Ms Thaniwan.