The Bank of Thailand indicates that the 4 billion baht borrowing decree will boost GDP by 0.6% in 69, with only minimal inflation gains. The bank remains confident that a 1% interest rate is appropriate.
The Bank of Thailand estimates that the 4 billion baht borrowing decree will boost GDP growth by 0.6% in 2569, up from 1.5%, with a minimal impact on inflation. It indicates a suitable policy interest rate of 1% but expresses concern that public debt is nearing its 70% ceiling, limiting fiscal policy room.
May 13, 2569 – Mrs. Pranee Sutthisri, Senior Director, Macroeconomics Department, Bank of Thailand (BOT) Revealed at the 1st Monetary Policy Forum of 2569, the impact of the Emergency Decree authorizing the Ministry of Finance to borrow 4 billion baht was discussed. According to the latest information, this borrowing measure is divided into two parts. The first 2569 billion baht will be used for consumption stimulus projects such as the "Co-Pay" scheme and transfers through the state welfare card. The Bank of Thailand has included this in its economic forecasts for 2570, which project growth of 1.5%, and for 2, which project growth of 2%.
"It is expected that the effects of the emergency decree on borrowing will help stimulate economic growth (GDP) in 2569 to be higher than the baseline forecast of 1.5%, an increase of approximately 0.6%. In 2570, the economic growth rate may decrease by about 0.4% from the baseline, due to the high base effect this year."
In terms of its impact on inflation, the Bank of Thailand (BOT) assesses that this economic stimulus measure will only cause a slight increase in inflation. This is because domestic demand remains fragile, and consumer purchasing power is low. Furthermore, past experience, such as with the various phases of the "Co-Pay" scheme from 2563-2565, shows that these measures did not significantly increase inflation. This is because in a weak economy, businesses tend to choose to offer promotions and attractive pricing to maintain purchasing power rather than raising prices.
However, the fiscal risk from borrowing an additional 4 billion baht could push the public debt-to-GDP ratio closer to the 70% ceiling within the next 1-2 years, reducing the fiscal space available to cope with unforeseen future events.
Therefore, the Bank of Thailand reiterates the importance of using borrowed funds as efficiently and effectively as possible to strengthen the economy in the long term. The focus should be on targeted spending and strengthening the economic structure in the long term, rather than merely stimulating consumption temporarily, in order to reserve fiscal space to cope with unforeseen future events.
The government has outlined a Medium-Term Fiscal Policy (MTFF) for 2570-2573, aiming to continuously reduce the fiscal deficit from the current level of 3.9% of GDP to approximately 1.5% by the end of the plan. This approach is a key factor that credit rating agencies closely monitor to assess Thailand's fiscal sustainability.
The Monetary Policy Committee is not in a hurry to adjust interest rates.
Regarding monetary policy, Dr. Don Nakornthap, Assistant Governor for Monetary Policy at the Bank of Thailand, stated that the Monetary Policy Committee (MPC) is aware of the 4 billion baht borrowing measure, but the actual amount released may be slightly higher than the 3 billion baht initially anticipated. The MPC views the impact on inflation as minimal and believes it will not lead to a change in monetary policy direction.
"The Monetary Policy Committee (MPC) continues to prioritize economic recovery and views the policy interest rate at 1% as appropriate and consistent with the current economic conditions."
This The Monetary Policy Committee (MPC) views Thailand as having an advantage in being able to wait longer for clarity on the situation compared to other central banks, because it started with relatively low inflation levels and despite risks from external factors. For example, a war in the Middle East might temporarily push energy prices higher, but it is believed that the disinflation process in Thailand will occur quickly and eventually return to the target range.
Meanwhile, concerns are rising about stagflation, a condition where the economy slows down and inflation soars simultaneously. The Bank of Thailand views the current situation as not yet constituting stagflation, even though the Ministry of Finance stated in the document requesting approval for the 4 billion baht loan decree that it was to prevent the risk of stagflation. It affirms that Thailand is not currently in this state. Although inflation has the potential to rise in 2569, the Bank of Thailand considers it to be at a level that is not excessively high compared to the past and expects it to decline in the following year.
A key factor in not viewing it as stagflation is that the upward trend in inflation is expected to decline rapidly. Even in the worst-case scenario, if the war drags on until the end of the year, the Thai economy could grow at less than 1% and inflation could exceed 5%. Even in this case, the Bank of Thailand still believes that inflation will gradually decrease on its own according to global price mechanisms, without causing stagflation in Thailand. By definition, persistently high inflation for years, reaching a point where there is a trade-off between inflation and the economy, would be a real risk of stagflation and a challenge for central banks worldwide.
"If stagflation were to actually occur, inflation would remain high and refuse to decline. The textbook approach for central banks worldwide would be to raise policy interest rates, even if it leads to an economic recession, in order to bring inflation down. However, for Thailand currently, the Bank of Thailand believes we are still far from that point."
While the structure of Thailand's labor market, which creates a wage-price spiral—where wages rise in line with prices—is difficult to achieve because Thailand only employs 50% of the total workforce and there is no automatic wage adjustment system for inflation.
Read more slides: https://www.bot.or.th/monetary-policy-forum/MPF_2569_01.pdf
Read related news
