Rift between PM and central bank gets wider

The government's plan to use such a large sum poses a challenge to maintaining economic stability and fiscal discipline.

He has also requested the Bank of Thailand (BOT) to cut interest rates, which combined with his other policies, have created a perception of disagreement between the government and the BOT over the past 8 months of governance.

Here are 5 events that have created the rift between the government and the BOT.

1. BOT’s concern about digital wallet projects

Sethaput Suthiwartnarueput, the Bank’s governor, has raised several concerns regarding the digital wallet project, especially the distribution of money to 50 million people. The BOT's standpoint is clear: the handout should only be given to specific vulnerable groups.

On January 10, 2024, the Prime Minister met with Sethaput to discuss the overall economy, international economics, interest rates, and inflation.

During the meeting, the Prime Minister explained the current market situation, as well as the dire financial straits in which many found themselves. He emphasised that he does not have the authority to manipulate interest rates and that he understood that BOT should be independent, explaining his reasoning and exchanging opinions without issuing orders.

Following a meeting of the Digital Wallet project policy committee chaired by Srettha on November 10, it was reported that Sethaput had raised several issues, especially regarding legislation on borrowing money. He observed that such actions might violate the law, as the injection of funds into the system must have a clear source.

2. Srettha meets Sethaput at Government House

The tension between Srettha and Sethaput saw the PM attempt to reconcile their differences by inviting Sethaput to a meeting at the Government House.

From his side, Sethaput said the BOT was expediting the process of solving the people's debt issues both in the short and long term.

The Prime Minister also informed the media that he told Sethaput that they could meet for coffee every week or he could visit Sethaput's office if necessary.

However, since January, there has been no sign of coffee meetings or discussions, and no photos of the Prime Minister and the Governor of BOT together.

3. Prime Minister has requested the BOT to reduce interest rates on several occasions

The Prime Minister has spoken through the media several times about requesting the Monetary Policy Committee (MPC), one of the committees overseen by the BOT, to consider lowering the policy interest rate. Such signals from the Prime Minister often occur before MPC meetings.

On March 15, the Prime Minister stated, "Many may not face as many problems as civil servants, who are essential to driving the country forward. However, there are still many civil servants struggling with debt, and no matter how much they work, they cannot cover the interest. This is the beginning of the country's decline. Even if the BOT does not reduce interest rates, I sincerely thank the agencies for their assistance, and I believe that civil servants in those agencies also appreciate it."

Towards the end of February, Srettha gave consecutive interviews about lowering the BOT's interest rates and requested a special MPC meeting to consider lowering interest rates.

"The government demands that the BOT reduces interest rates logically and wants Sethaput Suthiwartnarueput, the Governor of the BOT, to consider the people's distress more than the three issues raised by him," he stated.

In a latest MPC meeting, held on April 10, the MPC decided to maintain the policy interest rate at 2.5%.

The Prime Minister gave an interview to the media, saying: “I think the stance on interest rates is clear. He is independent. However, I would like to remind him that independence does not mean independence from the people's hardships. Think about the people's hardships. Today, there is no pressure, but the outcome will show whether it should cut or not cut."

On May 3, Srettha stated on the Thai Party's stage, "We have spoken with the Governor of the BOT to reduce interest rates, even though the Bank is independent. But it is not independence from the people's distress. We have spoken politely. If you do it, it's good. If not, we'll find another way," which means negotiating with commercial banks to help reduce interest rates to assist SMEs and vulnerable groups.

4. BOT has opposed several government policies.

The consideration of government budget-related policies by the Cabinet requires the opinion of various agencies. The BOT is one such agency that the Secretariat of the Cabinet must consult. There are several policies to which the BOT has raised objections, such as the programme to provide 1,000 baht per rai to rice farmers, totalling 5.6 trillion baht and the Digital Wallet project

5. Political questioning arises regarding the independence of the BOT

Most recently, Paetongtarn Shinawatra, the leader of the Pheu Thai Party, a key political party in the coalition, joined the fray. She explicitly stated that the BOT's independence hinders efforts to solve problems and drive the country's economy forward.

She added that legislation grants the BOT independence from the government. This issue poses a challenge and an obstacle in addressing economic issues because in the past, the government has solely relied on fiscal policies to drive the economy, leading to significant budget deficits increasing every year.

This has sparked widespread discussion on the matter.