The cabinet approves the central bank’s narrower headline inflation range for next year of 1-3%.

BoT says no change in monetary policy

The cabinet has approved the central bank’s narrowed headline inflation target for next year to a range of 1-3% from this year’s 1-4%, but this does not signal a change in monetary policy, says a senior official at the Bank of Thailand.

The new target is in line with the economic situation and offers more flexibility in monetary policy implementation, said Mathee Supapongse, deputy governor for monetary stability at the central bank.

The central bank is maintaining an accommodative monetary policy to support economic momentum and steer inflation back to target.

“The Bank of Thailand forecasts the target will not increase above 3% in the medium term for the next three years. It should enter the lower range of 1% in the long term, or the next five years,” said Mr Mathee.

The central bank predicted headline inflation of 0.7% this year and 0.8% next.

The regulator adjusted the new inflation target to a range base and cancelled the existing median base to raise flexibility to support monetary policy amid global economic uncertainties, he said.

If headline inflation stays out of the target range, the central bank must inform the Finance Ministry twice a year through an annual report.

The inflation target is reviewed each year and has not been tweaked since 2015.

The Finance Ministry and central bank agreed to keep the low band at 1% as any lower could affect policy space, financial stability and savings, said Mr Mathee.

He said the new inflation target is in line with subdued inflation globally because of technology development, which cuts operating costs and improves productivity.

Intense price competition from booming e-commerce and lower consumption in the long term because of the ageing society are also key factors reducing inflation.

The central banks of South Korea and Norway have also narrowed their headline inflation targets from 2.5-3.5% to 2%, and 2.5% to 2%, respectively.

Mr Mathee said the baht could start to weaken after local and foreign analysts commented that the local currency is fading as it is overvalued compared with the country’s economic fundamentals, meaning it will not maintain its status as a safehaven asset.

The baht is the top performing currency in Asia, rising around 7% against the greenback.

He said a quantitative easing policy is not need as Thailand has ample liquidity.

In a related development, government spokeswoman Narumon Pinyosinwat said the cabinet also approved the medium-term fiscal policy framework for 2021-24.

Under the medium-term fiscal framework, the government aims for economic growth during 2021-2024 of 3.1-4.1%, with an average inflation rate of 0.7-1.7% boosted by active domestic consumption, recovering exports and growing private and state investment.

Revenue was estimated at 2.77 trillion baht in 2021, 2.81 trillion in 2022, 2.91 trillion in 2023, and 3.03 trillion in 2024.