The ongoing feud between Prime Minister Srettha Thavisin and Bank of Thailand Governor Sethaput Suthiwartnarueput regarding interest rates remains the focus of media attention. Meetings of the Monetary Policy Committee (MPC) have been closely watched as elements of the government and business sector believe the central bank needs to reduce the policy rate. The MPC is set to meet six times in 2024, with the first meeting on Feb 7 concluding with the decision to keep the rate at 2.5%.

 

In anticipation of the next session on April 10, the government is advocating for an urgent, unscheduled meeting to reduce the rate, citing an economic crisis. This sentiment is echoed by several businesses that feel the impact of higher interest rates over the past year. Nevertheless, the central bank and some economists maintain that the process should not be hurried, as changes to the interest rate will not provide the instant solution desired by the government, reported Bangkok Post.

 

The MPC voted 5-2 to maintain the policy rate at the latest meeting, with two members advocating for a reduction of the rate by a quarter of a percentage point. The majority of committee members agreed that holding the policy rate at the current level would promote sustainable economic growth, which necessitates financial stability. Those in favour of maintaining the rate believe that the deceleration in economic growth is due to external and structural factors, while domestic demand continues to grow.

 

“An interest rate cut at this juncture would likely do little to spur economic growth given already robust domestic demand,” according to the report. The MPC also highlighted that monetary easing cannot solve structural challenges, which are the root cause of the recent growth slowdown.

 

Apichart Kasemkulsiri, CEO and CFO of L.P.N. Development Plc, expressed that the reduction of interest rates should be considered from multiple perspectives, and should follow the actions of the US Federal Reserve, as the residential sector is only one part of the economy.

 

The market expects the MPC to reduce the policy rate once or twice this year, according to Pimnara Hirankasi, chief economist of Krungsri Research. However, she forecasts the Fed may significantly cut its policy rate by 75-100 basis points this year.

 

Housing market

 

The housing market has been significantly affected by the high-interest rates of the past two years, which have risen from 0.5% to 2.5%, impacting home purchasing power by 15%. Uthai Uthaisangsuk, president of SET-listed Sansiri, stated that homebuyers who could afford a residential unit priced at 10 million baht early last year can no longer afford it following five interest rate hikes.

 

In the fourth quarter of last year, the impact was evident as the number of residential unit transfers nationwide dipped 12.7% year-on-year to 96,163 units, according to the Real Estate Information Center (REIC). Vichai Viratkapan, acting director-general of the REIC, said there was a decline in new residential units priced 5 million baht and lower because of the interest rate hikes, the economic slowdown and stricter mortgage rules.

 

Despite the pressure on the central bank to reduce the policy rate, the regulator must determine the most suitable rate for the entire economy, said the Federation of Thai Industries (FTI). Surapong Paisitpatanapong, FTI Vice-Chairman and spokesperson for the FTI’s Automotive Industry Club, stated that a suitable policy rate allows both businesses and households to benefit.

 

Sanan Angubolkul, Thai Chamber of Commerce Chairman, expressed that the Finance Ministry and the central bank should collaborate. He stated that the private sector believes Thailand’s economy is recovering slowly and requires support to reduce costs as well as measures to stimulate the economy.

 

By Alex Morgan

Caption: Photo courtesy of Bank of Thailand

 

Source: The Thaiger 2024-03-04

 

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Debase the currency in order to pay off the debt.  Study history.  It's one of the oldest tricks in the book.  It works until it doesn't.

is the Thai government now admitting there is an economic crisis? I don't recall a headline of them stating this before

I thought everyone was doing very well here...... loads of tourists, roads rammed with trucks and coaches, condos selling well, airport being expanded. One thing that might need to be kept in check is inflation!

13 hours ago, snoop1130 said:

In anticipation of the next session on April 10, the government is advocating for an urgent, unscheduled meeting to reduce the rate, citing an economic crisis.

You see, there's that word again.... CRISIS

I thought every thing was under control?

48 minutes ago, jacko45k said:

I thought everyone was doing very well here...... loads of tourists, roads rammed with trucks and coaches, condos selling well, airport being expanded. One thing that might need to be kept in check is inflation!

Someones not telling the truth.... or at least being very economical with it.

1 hour ago, cncltd1973 said:

is the Thai government now admitting there is an economic crisis? I don't recall a headline of them stating this before

It was probably redacted swiftly.

I can't understand why a Real Estate Tycoon/Prime Minister/Finance Minister would want lower interest rates.

 

 

Don’t have to do that; 500M Chinese and half a dozen Indians will be coming in soon to save the day 👍

13 hours ago, connda said:

Debase the currency in order to pay off the debt.  Study history.  It's one of the oldest tricks in the book.  It works until it doesn't.

What debt? Is that the debt they don't have but suddenly did, because they debased their currency and the cost of oil imports broke the bank?

Srettha , as a real estate tycoon , hopes to sell more if buyers get cheaper loans .

Will the interest rates on informal debt also be cut?

That is where most real (poor) folk borrow money.

Loan sharks are the biggest crooks.

1 minute ago, Tropicalevo said:

Will the interest rates on informal debt also be cut?

That is where most real (poor) folk borrow money.

Loan sharks are the biggest crooks.

I can't imagine Somchai the hood money lender adjusting his loan rates, just because BOT shaved 0.25% off the base rate. But I agree, that's a bigger problem to be tackled than lending to SME's.

1 hour ago, bamnutsak said:

I can't understand why a Real Estate Tycoon/Prime Minister/Finance Minister would want lower interest rates.

 

 

If the Thai interest rate (2.5%) starts getting nearer to other countries rates, particularly the Fed (currently 5%+ but expected to drop), that will likely encourage foreign capital inflows, which will strengthen the Baht.
 

Many on here will be changing their tune at that point…

 

Economics is a very complicated subject matter, well above my pay grade, but there might be a train of thought from the Government that an immediate drop in interest rates, further widening the gap with US rates gets them “ahead of the game” and would probably result in a weakening of the Baht.
 

That might be positive for some key economic sectors in Thailand, tourism, property and exports to name but three. Holding interest rates at around current levels with the Fed expected to be dropping rates throughout the year might see the interest rate gap closing and may have the opposite impact. 

 

 

2 minutes ago, realfunster said:

 

If the Thai interest rate (2.5%) starts getting nearer to other countries rates, particularly the Fed (currently 5%+ but expected to drop), that will likely encourage foreign capital inflows, which will strengthen the Baht.
 

Many on here will be changing their tune at that point…

 

Economics is a very complicated subject matter, well above my pay grade, but there might be a train of thought from the Government that an immediate drop in interest rates, further widening the gap with US rates gets them “ahead of the game” and would probably result in a weakening of the Baht.
 

That might be positive for some key economic sectors in Thailand, tourism, property and exports to name but three. Holding interest rates at around current levels with the Fed expected to be dropping rates throughout the year might see the interest rate gap closing and may have the opposite impact. 

 

 

Higher interest rates in countries such as the US, benefit savers more but impact the less wealthy less, because loan rates tend to be fixed. Plus, there is a greater percentage of wealthy people compared to poor ones. 

 

I think it's reasonable to presume that a 5% base rate in the US, has equal impact to a 2.5% base rate in Thailand, because the greater impact is felt by the larger section of the economy, which is poorer people.

 

 

 

 

the same house or condo is now 30% more than a few years ago

 

greedy real estate pushing owners to sell at a higher rate

 

I see it in my moo baan and condo prices around, living just outside bangkok by a few hundred meters

 

 

9 hours ago, daveAustin said:

Don’t have to do that; 500M Chinese and half a dozen Indians will be coming in soon to save the day 👍

They didn't save the Chinese real estate market. Why would they do any better in Thailand?

23 hours ago, snoop1130 said:

Nevertheless, the central bank and some economists maintain that the process should not be hurried, as changes to the interest rate will not provide the instant solution desired by the government, reported Bangkok Post.

The process should not be driven by political posturing but by economic foundations. The Central Bank is not a Cabinet ministry.

Would be good for us all and weaken the baht