Vitai Ratanakorn sees room to cut interest rates to give sluggish economy a lift
Bank of Thailand governor Vitai Ratanakorn said on Saturday that a weaker baht would be beneficial for the economy, and that there was room to cut interest rates if needed to support growth.
The baht has gained about 6% against the US dollar so far this year, becoming Asia’s second-best performing currency. The baht’s strength has posed a threat to exports and tourism.
“The central bank wants to see the baht weaken to an appropriate level that reflects the true state of our economy,” Mr Vitai told reporters at an event in Chiang Mai, without mentioning a specific level.
“I think the baht can weaken further,” he said, adding that the strength of the currency had been driven by a weaker dollar and Thailand’s current account surplus.
The baht in September hit a four-year high, partly because of its high correlation with gold.
The “baht situation should improve next year” with the country’s current account surplus expected to narrow, Mr Vitai said.
He also said there was room to lower interest rates if needed. “We’re reviewing the data. There is room for a further cut.”
The headline inflation rate in Thailand has been in negative territory for the past seven months. Policymakers have attributed continued price declines to supply-side factors, rather than weak demand.
The central bank’s Monetary Policy Committee left its key rate unchanged at 1.50% on Oct 8, after cutting it four times in the past year.
The next rate meeting is on Dec 17, and some economists expect a further reduction.
The Thai economy has faced multiple headwinds, including US tariffs, high household debt and the strong baht.
The economy expanded just 1.2% on an annual basis in the third quarter, the weakest pace in four years. Compared with the second quarter of this year, GDP contracted by 0.6%.
The central bank predicts the economy will grow 2.2% this year and 1.6% next year. Last year’s growth was 2.5%.
The government of Prime Minister Anutin Charnvirakul has set up a “Connect the Dots” task force to investigate irregular money flows that may be fuelling the baht’s unusual strength despite Thailand’s poor economy.
The government has said it will set up a special team to track suspicious fund movements linked to online gambling, scam accounts, and other “grey money” transactions.
The Bank of Thailand is ready to use its policy tools if speculators are attracted to the baht and causing distortions in the currency, Mr Vitai said.
But he cautioned that the central bank can only manage to reduce currency volatility, not reverse exchange-rate trends.