[BANGKOK] Thailand’s economic growth next year is looking increasingly at risk amid a possible delay in the budget because of the country’s political deadlock, according to outgoing central bank governor Sethaput Suthiwartnarueput.
“Our worry is next year,” Sethaput said in an interview with Bloomberg Television’s Haslinda Amin in Bangkok on Wednesday (Sep 3). The Bank of Thailand (BOT) forecasts 1.7 per cent growth in 2026 from about 2 per cent this year but “with all this uncertainty, there’s some risk to that” if the government delays next year’s budget.
Monetary policy space is limited with interest rates already at a multi-year low and where the BOT wants, he said. A material deterioration in the economic outlook would warrant another rate cut, he added.
Thailand’s credit rating could also be at risk without a change in the political risk overhang in the economy and without near-term fiscal consolidation, he said.
Sethaput was speaking at almost the exact same time that the country’s political crisis worsened, setting the stage for the downside scenario he fears to materialise.
Jostling by rival parties Wednesday to lead the next government raised the possibility of drawn out leadership battle, after the Constitutional Court dismissed Paetongtarn Shinawatra as prime minister for ethical misconduct – the second leader to be ousted in just over a year.
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Sethaput, 60, will complete his five-year term at the end of this month. He began his career at McKinsey in New York and the World Bank in Washington before eventually joining Thailand’s central bank, and presiding as governor across several finance ministers and prime ministers in that time.
Analysts have warned that a prolonged political impasse can weaken Thailand’s already fragile economy – buffeted by the blow from US trade tariffs, a downturn in tourism and the highest household debt levels in South-east Asia. The government forecasts growth to average 2 per cent this year, less than half the pace of expansion of regional peers such as Indonesia and the Philippines.
The Sethaput-headed Monetary Policy Committee has cut the benchmark interest rate by a cumulative 100 basis points since October to 1.5 per cent.
Central bank officials have said that while policy remains accommodative, any additional easing would happen only if there’s a “significant material deterioration” in its economic growth outlook, or emergence of unexpected shocks.
Thailand’s headline inflation has been in negative territory since April and consistently undershot the central bank’s 1 per cent to 3 per cent target range throughout this year. The core gauge, which strips out volatile fuel and fresh food prices, has cooled for two straight months.
Vitai Ratanakorn, a seasoned banker and rate-cut advocate, is set to take over as BOT’s new governor on Oct 1.
Vitai has publicly favoured significant cuts to the central bank’s policy rate for a sustained period to revive the stagnant economy. More importantly, though, commercial banks must also pass on the reduction to customers, he said.
Although interest rates are decided through a majority vote by the seven-member Monetary Policy Committee, Vitai is expected to have influence over its direction as the head of the panel. He will chair the Monetary Policy Committee for the first time on Oct 8.
Vitai previously headed the government Savings Bank, which led government efforts to provide financial relief to small businesses and households who borrowed heavily during the pandemic. BLOOMBERG
