Negative inflation enough reason to lower policy rate, PM tells central bank
Prime Minister Srettha Thavisin said the Bank of Thailand (BOT) should consider reducing the policy rate by at least 25 basis points when its Monetary Policy Committee meets on Wednesday.
Srettha said on Tuesday that he and BOT governor Sethaput Suthiwartnarueput had met on January 10 and both agreed that Thailand was suffering negative inflation for four consecutive months. However, he said, they both had different opinions regarding fiscal and monetary policies.
After the last meeting, Srettha said Sethaput had confirmed that he had no conflicts with the government and could communicate via the Finance Ministry’s Fiscal Policy Office. Srettha also holds the Finance portfolio.
The premier and other leading Cabinet members have been repeatedly calling on the BOT to lower the policy rate to spur spending and revive the economy.
Yet Sethaput and the MPC are adamant that they have been applying the correct monetary policy to try and keep the inflation rate within target. The government is not allowed to interfere in the central bank’s monetary policies.
BOT has argued that the negative inflation rate over the past four months is not the actual rate because the government subsidised oil prices.
However, Srettha said the fact that inflation entered the negative zone due to oil subsidies was proof that inflation was not a serious problem.
He said if the government controlled the high manufacturing costs of consumer goods, the prices would not rise and they would not push up the inflation.
“It has been proven. We agree with the figures, no one has argued that the figures are not real. The figures are clear,” the PM said. “So, please admit that inflation is not an issue. The real problem now is deflation. Therefore, I believe it’s time to lower the policy rate. I want the MPC to ponder this during its meeting [on Wednesday].”
When asked if he saw the BOT’s adamant stance to retain the 2.5% policy rate as an indirect sign of opposition to the 500-billion baht digital wallet scheme, Srettha replied: “The media has to consider this on its own. But I believe the government can work with the central bank … the monetary policy must go hand in hand with the fiscal policy.
“The current inflation rate is still lower than the BOT’s minimal target, so if the policy rate is lowered from 2.5% to 2.25%, there will still be plenty of room for the BOT to play in case of a crisis.”
He said the inflation rate rose because of high demand, but it is now negative because of the lack of demand.
“So, it should be safe to lower the interest rate to spur the economy, isn’t it?” Srettha asked. “We have discussed this. This might just be different opinions [between BOT and the government]. I’m not sure if it's an issue of pride or not, but what’s clear is that the inflation has been negative for four consecutive months.”
On the digital wallet scheme, Srettha said the committee in charge will meet next week without waiting for a formal opinion from the National Anti-Corruption Commission (NACC). “But I hope the NACC submits its opinion soon,” Srettha said.
