Thai Economists Back BOT Independence as Rate-Cut Calls Grow

(Bloomberg) -- A group of Thai economists backed the central bank’s independence in setting monetary policy after government and business leaders ratcheted up calls for lower borrowing costs to support economic growth.

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Pursuing an independent monetary policy is vital for the nation’s economic stability as it prevents the misuse of monetary policy for short-term political goals while keeping inflation in check, the Economic Society of Thailand said in a statement.

The group of about 300 economists is in the process of collecting signatures from its members to support the cause and plans a seminar on June 28 on the topic of strengthening economic structure over the medium- and long-term.

Prime Minister Srettha Thavisin and his aides have been pushing for a rate cut — a move the central bank has repeatedly resisted, saying that lower borrowing costs won’t fix the economy’s problems. The rift widened last week after the premier defended a statement by Paetongtarn Shinawatra, the head of Thailand’s ruling party, that BOT’s autonomy posed an “obstacle” to reviving Southeast Asia’s second-largest economy.

That sparked speculation that the ruling coalition may seek to amend the central bank law guaranteeing it autonomy. Srettha and newly-appointed Finance Minister Pichai Chunhavajira have denied any such move but both have underlined the need to align monetary and fiscal policies to revive the economy.

While BOT Governor Sethaput Suthiwartnarueput has said that political pressure won’t sway the central bank’s independent interest rate decisions, the finance minister earlier this week said he planned to meet with Sethaput as soon as possible to “talk and crystallize” their different views.

“Politicians shouldn’t act to threaten or put pressure on the central bank independence in public,” Nipon Poapongsakorn, head of the group of economists and distinguished fellow at the Thailand Development Research Institute, said in the statement. “We ask those who are responsible for both fiscal and monetary policies to cooperate to maintain economic stability.”

They can debate on the basis of data, but should let central bank independence be as it is, he said.

Thailand’s top business lobby too weighed in on the simmering interest-rate debate Wednesday, supporting the government’s call for lower borrowing costs.

BOT has kept borrowing costs at a decade high 2.5% since September. It said last month that holding the rate steady has given it “policy optionality” to deal with currency volatility, geopolitical risks and uncertainties stemming from the timing of the Federal Reserve’s pivot to easing.

The central bank has also disagreed with a government plan to hand out 10,000 baht ($270) each to 50 million Thais later this year to stimulate the economy and called for it to be more targeted at the weaker sections of the population.

(Updates with details on clashes on cash handout in final paragraph. An earlier version of this story corrected month of planned meeting in third paragraph.)

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