Ministry, BoT iron out differences

Pichai says focus is credit access

In a move to alleviate conflict between the government and the Bank of Thailand, Finance Minister Pichai Chunhavajira has reiterated the government acknowledges the central bank’s autonomy to set interest rate policies.

However, he urged the central bank to improve credit access for households and small and medium-sized enterprises (SMEs).

Speaking after a two-hour meeting with central bank governor Sethaput Suthiwartnarueput on Thursday, Mr Pichai said they discussed the inflation target framework of 1-3% remaining steady for four years and how it should normally be reviewed annually.

ACCESS TO CREDIT

While the policy interest rate was the cause of earlier heated rhetoric, he said the main issue now is not related to the magnitude of interest rate reductions, but rather the challenge of accessing credit.

The customers who can access credit are mostly mid-sized and large businesses, especially those that can seek capital in the capital market.

“The groups that still do not have access to credit are SMEs, households, people with debt repayment problems, people who have never applied for credit and need new credit, and those affected by the pandemic,” said Mr Pichai.

“Even though the government has already implemented assistance measures, they still cannot return these groups to full strength. We need to see how we can improve on this issue for vulnerable groups.”

He said large financial institutions have an average loan portfolio of 4 trillion baht, while the amount vulnerable groups need to access credit is a fraction of that amount.

Financial institutions should be able to help tackle the problems of these groups, as extending such assistance is unlikely to jeopardise their discipline, said Mr Pichai.

“Right now, we should focus on access to credit because I firmly believe between a 50-basis-point interest rate cut and the ability to access credit, what people prioritise above all is access to credit,” he said.

Regarding the policy interest rate, which has attracted much discussion, Mr Pichai said the government will refrain from intervening in this matter, allowing the central bank to make its decisions independently.

He said as a former member of the Bank of Thailand’s board, Mr Pichai speaks the same language as the officials.

“The negotiations went well. Some points were discussed with the governor, and he has accepted them,” said Mr Pichai.

As for increasing access to credit, he said the central bank can exercise a certain amount of flexibility within the existing framework, while financial institutions can also start initiatives.

CLARITY SOUGHT

New Deputy Finance Minister Paopoom Rojanasakul said he expects the outcome of the discussion is a clearer direction for the two institutions.

“It may not be a complete understanding yet, but it should be clearer. I believe it will lead to a better direction,” he said.

Mr Paopoom said these types of discussions are common as the ministry supports collaboration between fiscal and monetary policies, which need to be coordinated to be effective.

However, given the economic outlook, he said differing economic perspectives between the central bank and the Finance Ministry may lead to differences in monetary and fiscal policies.

“When economic perspectives differ, the rates of acceleration and braking also vary. The best course of action is to engage in dialogue to ensure alignment in economic perspectives,” said Mr Paopoom.

“If we align economic views, it will lead to similar policy accelerations for monetary and fiscal policies.”

POSITIVE OUTCOME

Kavee Chukitkasem, head of research and content at Pi Securities, said the discussion should yield positive results as the two parties have extensive knowledge of the capital and financial markets.

“The central bank previously seemed to be concerned about the baht’s potential slide if interest rates were cut too early,” he said.

“However, with the Federal Reserve showing signs of a potential interest rate cut amid strong economic indicators and the baht already appreciating, the timing of the meeting seems opportune.”

Mr Kavee said he believes if the Bank of Thailand continues to maintain interest rates, there are still ways to loosen up monetary policy to help prop up the economy.

“The relaxation of monetary policies, particularly for SMEs, has the potential to invigorate the sluggish economy. SMEs are grappling with significant debt loads, which in turn have ripple effects on other small businesses they engage with, creating a domino effect,” he said.