World Bank says Thai interest rates appropriate, neutral

The Bank of Thailand logo is pictured in Bangkok, Thailand, Aug 5, 2016. REUTERS/Chaiwat Subprasom/File photo

BANGKOK – Thailand’s interest rate levels are appropriate for the current situation and are neutral, the World Bank said on Wednesday at an event in Bangkok.

The Southeast Asian country faces temporary disinflation, but no deflation, World Bank Senior Economist for Thailand Kiatipong Ariyapruchya told reporters, adding it was normal for the central bank to have different views from the government.

His comments come as Prime Minister Srettha Thavisin has for months repeatedly urged the Bank of Thailand (BOT) to cut interest rates by 25 basis points, arguing the economy was in a ‘crisis’ – a characterization that the central bank rejects.

The BOT has so far resisted government pressure to reduce borrowing costs by holding rates at 2.5 percent, the highest in a decade. It next reviews policy on April 10.

‘Creative tension’

BOT Governor Sethaput Suthiwartnarueput has called the disagreement with the government a “creative tension,” contending that rate cutes would not help the economy substantially because of inherent structural problems.

READ: Thai PM says central bank rate hikes no good for economy

Srettha, who is also finance minister, has said rate cuts were suitable because of low inflation.

Thai February consumer price index dropped for the fifth straight month, falling 0.77 percent.

“This is disinflation, which is a temporary effect,” World Bank’s Kiatipong said, adding the bank is forecasting that inflation would return to normal.

The government’s $14 billion plan to giveaway 10,000 baht ($279.56) to 50 million Thais to be spent in their local communities via a digital wallet would help boost GDP by 1 percentage point, said Kiatipong, but would also increase debt 3 percentage points.

The World Bank proposes more targeted measures, he said.

($1 = 35.7700 baht)