Thai central bank says policy rate will stay low for 1-2 years

Thailand’s benchmark interest rate will likely stay at an all-time high of 0.5% for a year or two until the economy clearly recovers, a senior central bank official said on Monday.

FILE PHOTO: The central bank of Thailand is seen at the Bank of Thailand in Bangkok, Thailand April 26, 2016. REUTERS / Jorge Silva

BANGKOK: Thailand’s benchmark interest rate could stay at an all-time high of 0.5% for a year or two until the economy recovers sharply, a bank official said on Monday central, as the country treats a third wave of COVID-19 infections.

Inflation may rise temporarily but stagflation is not expected, Don Nakornthab, senior manager of the Bank of Thailand (BOT), told an economic forum.

Inflation in the second quarter could exceed the BOT’s target range of 1% to 3%, but that will be temporary due to a weak base last year, he said.

“Stagflation is very unlikely. Another concern is that inflation will not increase,” Don said.

The BOT has left its policy rate unchanged since mid-2020 and warned of the impact of the current outbreak, which has accounted for around 80% of total cases and deaths in Thailand.

He will review the economic policy and outlook on June 23.

“The key rate is at an all time high and will likely stay there for a while. In a year or two there may not be an increase,” Don said.

The distribution of vaccines will be the most important factor in reviving the tourism dependent economy, he said. Mass vaccinations will begin next month.

The BOT said the level of the key rate was not a problem and the problem was distributing liquidity to needed areas.

“Cutting rates further will not help anything,” Kanit Sangsubhan, a member of the BOT’s monetary policy committee, told the forum.

The epidemic will worsen the country’s high household debt, which now accounts for around 89% of gross domestic product (GDP), Don said.

Thailand’s public debt-to-GDP ratio can exceed its 60 percent cap if necessary because it remains relatively low compared to some other countries, Don said.

Thailand’s new 700 billion baht ($ 22.3 billion) loan approved last week is said to support the economy next year, Finance Ministry official Pisit Puapan said.

(1 USD = 31.35 baht)

(Reporting by Orathai Sriring, Kitiphong Thaichareon, Satawasin Staporncharnchai; Editing by Martin Petty)

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