Bangkok, CIMB Thai Bank Research Office says don’t let currency war be the answer. Interest is not a cure for every disease. If you hope to rely on policy interest rates An interest rate cut of just 0.25 or 0.50% is not enough to stimulate the economy. But it must be reduced to 1.25% to be enough. Other measures should be found to help the economy recover as well.
Dr. Amornthep Chawala, Assistant Managing Director The executive of the Research Office of CIMB Thai Bank revealed that it is a political and economic issue that is worth following. Between the government that expects to reduce interest rates to support the economy and the Bank of Thailand that still maintains the policy interest rate to maintain economic stability. Conflict over interest rate direction affects foreign investors’ confidence. During the week of the MPC meeting The baht is the weakest in the region. And especially after the numbers of the Thai economy in the 4th quarter of 2023 expanded lower than the previous year. and contracted co
mpared to the previous quarter. The pressure to reduce interest rates on April 10 will increase.
However, interest is not a cure for all diseases. If you hope to rely on policy interest rates An interest rate cut of just 0.25 or 0.50% is not enough to stimulate the economy. But it must drop to 1.25% to be sufficient, which is a reduction at the level of the financial crisis. and is the same level as before the Covid crisis Side effects of lowering interest rates like this It will cause the baht to depreciate. and may declare a currency war with neighbors Because a weak baht will rob us of our ability to compete with competing countries. and may later spread to a depreciation of regional currencies.
‘I think the best way to solve the game is to coordinate monetary and fiscal policy. Now it’s like we’re watching a football team where the forward kicks the ball for the defender to run up and score a goal. Maybe because a player was injured. (The budget won’t be released until May.) But the defender hasn’t move
d to play midfield. Still kicking the ball for the striker because of goalkeeping concerns (Emphasis on maintaining the stability of the money market and economy) The audience cheered for each side. The Thai economy is difficult to move forward. We must find a way to solve the game and see what we can do to coordinate the players on this team,’ Dr. Amonthep said.
However, if we consider the statements and communications of the Monetary Policy Committee You will find many factors that indicate why it is not yet time to reduce interest rates. I can try to interpret three factors as follows: 1. The Thai economy grows slowly. comes from structural problems It doesn’t come from too high interest rates. Structural problems come from the lack of connectivity of the Thai manufacturing sector in the global supply chain. Exports expanded at a low pace even though global demand is recovering well. Lack of competitive ability or lack of products that are in demand in the global market. For example, Thailand is a product
ion source for Hard Disk Drives (HDD), but the world is changing to using Solid State Drives (SSD) or importing products from China makes Thai SMEs Had to gradually close down the business Meanwhile, government budget disbursement is small and delayed. It has affected the Thai economy in the past.
2. Low inflation It is not from weak demand. The rate of inflation has decreased. Part of it comes from government measures. That affects the price of energy in the country to decrease. But it is a temporary relief from the problem. And it doesn’t come from weak domestic demand. (I see this differently. I think there are some parts where domestic demand is weak, making price increases difficult.) The Bank of Thailand also emphasizes that the price level of goods and services has decreased but is still high compared to the pre-Covid period. and considers that if domestic demand is still good Using monetary policy to stimulate may not be accurate. It is more appropriate to solve structural problems in the production
and export sectors.
3. Side effects of reducing interest rates too quickly Reducing interest rates when domestic demand is still strong Consumption can still grow. This may have a side effect on the household debt problem which has rapidly improved during the rising interest rates. Increased further This has a negative effect on long-term economic stability. Maintaining interest rates first To maintain the ability to carry out policy or keep policy space for use when necessary.
However, interest is not a cure for all diseases, even if interest is reduced. It can only support the economy. It did not stimulate the Thai economy to expand above 4%, and reducing the policy interest rate by only 0.25-0.50% did not significantly reduce interest expenses. It might be enough to reduce some tension. Create incentives for people to spend and invest more. But the transmission of interest rate cuts to the real economy may take up to 6 months, given the overall Thai economy is weak and without fiscal measures to support
it. It must rely on reducing interest rates to build confidence. Enhance liquidity and put pressure on the baht to depreciate, but it is hoped that the Bank of Thailand still has other ways to stimulate the economy with other financial measures. There are additional measures that can be added, such as reducing restrictions on lending, reducing the LTV limit, and lengthening the period for repaying debts for problem debtors. However, these measures can only support the economy, giving hope that this year the Thai economy will expand. above the 2% level, but whether it can be stimulated to reach 3% or not remains to be seen through various measures From the government again.
Source: Thai News Agency