Finance minister pushes BOT chief on debt, liquidity crisis
Pichai says top priority is tackling record household debt that is dragging down economy
Household debt, the policy rate, and baht appreciation topped the agenda at an extraordinary meeting between Finance Minister Pichai Chunhavajira and Bank of Thailand (BOT) governor Sethaput Suthiwartnarueput on Thursday.
In the first meeting between the finance minister and BOT governor since Paetongtarn Shinawatra’s government assumed office in August, Pichai again pushed for a rate cut to boost liquidity and sluggish economic growth projected at just 2.7% this year.
The BOT held key interest rates at a decade-high of 2.50% for a fifth straight meeting in August despite pressure for a reduction from the government.
Speaking to reporters after the meeting, Pichai said the top priority was to tackle rising household debt with debt restructuring measures for commercial banks and financial institutions. Household debt hit a record high of 90.7% of GDP in the first quarter before falling slightly to 89.6% in the second quarter.
Pichai said cooperation between the government, BOT and banks was required to aid vulnerable households who account for 800,000 NPLs (non-performing loans).
He ruled out a “haircut” (debt forgiveness), saying this would create a moral hazard for the financial system.
He said the debt problem was now affecting both individuals and business.
“The household debt issue has spread across groups in the public and business sphere, making it harder to solve than the 1997 financial crisis, where only a few large corporations were suffering liquidity constraints.”
Pichai said that lowering the policy rate was one of several measures the BOT could implement to alleviate lenders' concerns about issuing loans and boost the economy. Other tools included extending the repayment period. However, increasing liquidity was the main priority, he said.
“Despite differences in opinion between the ministry and the BOT, both agree that increasing public access to funds is more important than reducing the policy rate,” said Pichai.
The ministry and BOT agreed that the baht remains at a manageable level despite recent appreciation but would remain vigilant over any changes in the currency market.
“The ministry believes that the baht’s strengthening will not significantly affect export volumes and is confident that both exports and tourism will bounce back,” Pichai said.
