Finance minister urges action on rising Thai baht, high policy rate

Finance Minister Pichai Chunhavajira has expressed concerns about the strengthening baht and the current policy interest rate, which he says is too high.

Pichai, who doubles as deputy PM, said on Wednesday that a stronger currency will hurt Thailand’s competitiveness in exports against other nations in the region.

The baht has appreciated to 36.23 baht against the US dollar, the highest in 19 months. This, he said, was influenced by the US Federal Reserve System’s decision to reduce its policy interest rate and it has signalled it will further cut the rate by 0.75% soon.

Pichai said the Fed’s decision has prompted investors to sell US bonds and return to investing in developing countries, including Thailand.

However, he said, the Thai currency has appreciated a lot faster than other currencies in the region, including the Chinese yuan, Vietnam’s dong, Japan’s yen, Indonesia’s rupiah and the Malaysian ringgit.

Pichai said the Bank of Thailand should find out why the baht has been rising faster than other currencies in the region, as this might affect exports.

Apart from reviewing the strengthening currency, Pichai said the central bank should also talk to the Finance Ministry about what would be a suitable policy interest rate.

Last month, BOT’s Monetary Policy Commission retained the policy interest rate at 2.5%, even though the Pheu Thai-led government has been trying for months to convince the central bank to lower the rate to facilitate growth.

He said he believes the rate should be lowered to 2% per annum to give more room for inflation, which would in turn facilitate economic growth.

“It’s now time for the BOT and Finance Ministry to discuss what rate will be most appropriate,” the minister added.

Pichai noted that the central bank had set a targeted frame for inflation from 1-3% but the actual inflation over the past eight months was just 0.15%.

“Since the inflation was lower than the targeted frame, it must be deemed influenced by the policy rate and the government sees that the rate should be 2%,” Pichai said.

He noted that since 2015, the actual inflation has been six times lower than the target frame of the central bank.

“If the central bank fears that the lower rate would spur spending and inflation would rise, it should take into account the fact that the inflation has been six times lower than the targeted frame since 2015,” Pichai said.

Pichai said that though the government used fiscal measures to run the country, they should still go along with the monetary policy.

“The government’s policies are aimed at driving growth but the high interest will go against this,” Pichai added.

“So, the government and the Finance Ministry want the BOT to coordinate its monetary and fiscal policies, so they are in line with those of the government. If we put our heads together, we will be able to find a common ground for the monetary and fiscal policies to go along well to revive the economy.”