Interest rates excessive, says incoming Bank of Thailand chair
Kittiratt tells seminar that while he respects Monetary Policy Committee’s decision to maintain interest rates, further explanation is warranted
Foreign reserves should not fall below the equivalent of six months of imports, Kittiratt Na Ranong, the incoming chairman of the Bank of Thailand (BOT), told participants of Thursday’s seminar “The Stock Exchange and Challenges in a Changing Era” marking the 50th anniversary of the Stock Exchange of Thailand (SET).
He went on to note that due to various factors, the reserves have steadily increased and are now excessively high and urged proactive identification of problems before they cause severe damage.
Kittiratt said he respected the recent unanimous decision by the Monetary Policy Committee (MPC) to maintain the policy interest rate at 2.25%, but said that further explanation is warranted. The policy rate, whether reduced or not, is only one part of the monetary policy mechanism. However loan interest rates in the system are considered excessively high, particularly the gap between deposit and loan interest rates, which should be narrowed.
Loan interest rates remain at elevated levels, with personal loans at 24% per year and credit cards at 16%, with high default rates. Addressing this disparity could help alleviate financial burdens on borrowers and improve overall financial stability, he said.
He referred to his Facebook post of December 5, 2023 in which he expressed the view that a swift and significant reduction in interest rates is the way to prevent disaster, saying that his belief is unchanged, yet there has been no noticeable rapid reduction in interest rates, and loan rates have barely decreased.
Regarding his nomination as chairman of the Bank of Thailand (BoT), Kittiratt admitted to wondering whether his appointment would lead to a decline in public confidence in the central bank. “If you believe I can do this job well, I must do it right," he said, emphasising the importance of aligning with reasonable expectations of all stakeholders. He pledged to approach the role with good governance, determination, attentiveness, honesty, integrity and transparency.
He addressed concerns that his appointment might lead to interference in monetary policy, humorously adding,
"I can intervene in fiscal policy too – but only through ideas." He clarified that under the law, the BOT Chairman has no authority to direct or interfere with the three committees under the BOT's jurisdiction. However, if appointed, he sees his role as bridging monetary and fiscal policies.
“I'm not claiming to be extraordinary, but I believe fostering a collaborative atmosphere and listening to one another will lead to better outcomes," he concluded.
He sees tax reform as both a source of revenue for the government and a burden on taxpayers. “Tax structure adjustments should be regularly reviewed, and any decisions should be carefully considered and announced only after thorough deliberation to avoid speculative actions. Stakeholders must think carefully and meticulously to ensure appropriateness and avoid unintended consequences,” he said.
“The idea of raising the VAT rate to 15% is deemed unrealistic, as Thailand’s VAT has been capped at 10% but reduced to 7% since the Asian financial crisis. Therefore, any increase would likely only return to the 10% level. Personally, I believe tax adjustments should be gradual – such as increments of 0.25%, 0.50%, or 1% – accompanied by clear communication with the public about how the additional revenue will be utilised.”
