Rate-setters say flexible target range will play crucial role in maintaining medium-term price stability
THAILAND’S central bank is right in persisting with an inflation target range of 1 to 3 per cent, according to its rate panel, a stance likely to ratchet up the tension with a government keen on a higher band to create room for monetary easing.
The current target has effectively anchored medium-term inflation expectations and is sufficiently flexible to accommodate supply-side fluctuations such as the recent rise in global energy prices, according to the minutes of August meetings of the seven-member Monetary Policy Committee released on Wednesday (Sep 4). The target also helped lower inflation persistence, allowing the shocks to quickly dissipate in such scenarios, it said.
“Going forward, the Thai economy will face more relative price changes from supply-side fluctuations and structural factors,” the rate-setters said. “A flexible inflation target range, therefore, would play a crucial role in maintaining medium-term price stability.”
The panel’s view is at odds with the government – which has called for the price band to be raised – and aligns it more with Bank of Thailand (BOT) governor Sethaput Suthiwartnarueput’s stance that the inflation range remains appropriate for the nation’s economic and growth outlook. The finance ministry and BOT officials are tentatively scheduled to meet later this month to set the target for 2025.
BOT has kept borrowing costs at a decade high 2.5 per cent since September 2023 even as inflation slipped into the negative territory. Sethaput said last week the monetary authority is ready to adjust borrowing costs if needed while maintaining policy space for unexpected risks.
The inflation target for 2025 is closely watched by market participants after former prime minister Srettha Thavisin’s repeated calls for a rate cut was ignored by the rate panel. Newly-elected leader Paetongtarn Shinawatra, who has pledged to lift the nation out of an “economic crisis”, had previously described the central bank’s autonomy as an “obstacle” to reviving the economy.
The rate-setters also argued that the current low inflation did not indicate signs of deflation, and sluggish prices could partly alleviate the rise in the cost of living, particularly for low-income households. The panel expects inflation to return to the target by the end of this year and sees it stabilising at the lower bound of the target range.
Consumer prices probably rose 0.4 per cent in August, staying below the BOT’s target band for a third straight month, according to a Bloomberg survey of economists. Official data is due on Thursday. BLOOMBERG
