Debating central bank autonomy
transparency on deciding alternatives,” said Mr Pipat.
“As long as the central bank can maintain the framework to achieve the goals, the government should not interfere.”
However, the central bank’s decisions and costs in choosing any option should be explained, he said.
“Everyone has the right to criticise the central bank’s work. It can be debated. The bank is not an untouchable institution. But the debate should be based on policy implications,” said Mr Pipat.
“When people want to change the law to reduce the freedom of the central bank, that is the point where we should start to worry. And investors will be worried.
“I like that Fed chairman Powell says before almost every speech to Congress: ‘I appreciate the opportunity to testify before you today. Let me start by saying that my colleagues and I strongly support the goals of maximum employment and price stability that Congress has set for monetary policy. We are committed to providing clear explanations about our policies and actions. Congress has given us an important degree of independence so that we can effectively pursue our statutory goals based on facts and objective analysis. We appreciate that our independence brings with it an obligation for transparency and accountability’.
“That reflects the issue of independence and the responsibilities of the central bank very well.”
CUTS LESS LIKELY
Meanwhile, Asia Plus Securities (ASPS) said because Thailand’s inflation rate is rising, the MPC is less likely to cut the policy interest rate.
Thailand’s consumer price index (CPI) rose in April for the first time in seven months by 0.19% year-on-year as fuel prices increased, in line with rising global energy prices and the expiration of the diesel excise tax cut, while fresh food prices also gained.
The Commerce Ministry expects the CPI to rise 1-1.5% year-on-year in May, 0.8-1.0% year-on-year in the second quarter, and 0-1% (0.5% on average) this year.
According to ASPS, Thailand’s real interest rate is 2.31% (a policy interest rate of 2.5% minus an inflation rate of 0.19%), higher than the US real interest rate of 2% (interest rate of 5.5% minus an inflation rate of 3.5%).
“The government sees the central bank’s monetary policies as hindering an economic recovery, causing the economy to rely heavily on fiscal stimulus, which results in massive public debts,” said the brokerage.
“This is why the government is urging the central bank to consider an interest rate cut.”
Fiscal and monetary policies are inconsistent, affecting investor confidence and weakening fund inflows, causing the Stock Exchange of Thailand index to fluctuate in the short term, noted ASPS.
Thailand’s economy is still projected to grow, supported by fiscal 2024 budget disbursement, economic stimulus including the 10,000-baht digital wallet scheme, and a hike in the minimum wage to 400 baht per day nationwide, said the brokerage. GDP growth in 2024 is estimated at 2.4-2.8%.
“We expect monetary and fiscal policies to be consistent later on, which will revive investor confidence,” noted ASPS.
MUTUAL COLLABORATION
Prateep Tangmatitham, chief executive of SET-listed developer Supalai, emphasised the importance of the central bank’s independence in maintaining economic stability.
However, he said interest rates should be reduced by at least 50 basis points to help stimulate the economy.
“If interest rates are reduced, the government will incur lower interest payments,” said Mr Prateep.
“This can aid vulnerable groups as many of them have yet to fully recover from the impact of the pandemic.”
The thriving tourism industry helps businesses and individuals involved in the tourism and hospitality sectors, but people employed in other sectors or residents of non-tourist destinations still face stagnant income, he said.
“While lower interest rates may lead to a capital outflow and potentially weaken the baht, exporters would benefit from this,” said Mr Prateep.
Saravoot Yoovidhya, chief executive of TCP Group, the manufacturer and distributor of Kratingdaeng energy drink, said Thai officials should draw lessons from other countries on the interdependent relationship between the central bank and the government.
“At the end of the day, I believe the government and the Bank of Thailand must work together,” said Mr Saravoot.
Metaphorically, he said the issue can be likened to various departments within a company, such as the sales and marketing departments, where each department is keen on a different goal.
“If we are confident we can do our best for the consumer, the people and the country as a whole, we will be able to find a solution,” said Mr Saravoot.
“It’s normal to disagree, but we must respect each other, make more rational, impartial decisions, and work together without bias.”