WASHINGTON/BANGKOK: The Bank of Thailand (BoT), under pressure from the government to cut interest rates, could adjust monetary policy if the outlook for the economy changes and structural challenges clearly reduce its long-term potential growth, BoT deputy governor Alisara Mahasandana said.
The central bank's Monetary Policy Committee is open to all input, but needs to balance immediate and longer-term economic factors when setting rates, Ms Alisara told Reuters.
Prime Minister Srettha Thavisin, who is also the finance minister, has openly challenged the central bank over its monetary policy, repeatedly saying rate cuts would help the economy cope with high household debt and China's slowdown.
Mr Srettha on Tuesday said he had asked the country's four largest lenders to lower interest rates to help small businesses and the economy. The four lenders are Bangkok Bank, Kasikornbank, Krungthaibank and SCBX .
"Vulnerable groups like SMEs have a problem with a high interest rates ... I asked the four to consider interest rates," Mr Sretta told reporters, adding Thai financial institutions were strong.
"The MPC welcomes and values input from all stakeholders... But when it comes to a monetary policy decision, the MPC needs to weigh between short-term and long-term impacts on monetary policy objectives... and they could have different views," Ms Alisara said, speaking on the sidelines of the International Monetary Fund (IMF) and World Bank Spring Meetings in Washington.
Monetary policy could be "recalibrated" if there was a change in the growth and inflation outlook, and if structural impediments "clearly lower our long-term potential growth", said Ms Alisara, who is an MPC member.
The central bank kept the key interest rate steady at 2.50%, its highest in over a decade, in a majority decision on April 10. The next review is on June 12.
The central bank forecasts Southeast Asia's second-largest economy will grow 2.6% this year and 3.0% in 2025, picking up from last year's 1.9%.
Ms Alisara said that while higher private consumption and tourism were expected to bolster growth, uncertainties remained, including how well its exports will recover.
She said annual headline inflation was expected to return to the BoT's target range of 1-3% by the end of the year. Energy subsidies have kept consumer prices below year-ago levels for six straight months to March, driven by energy subsidies, but prices are expected to rise in May.
Ms Alisara said negative headline inflation "does not reflect weak demand, it's not deflation".
The baht is expected to be volatile, driven by external factors, especially dollar strength, she said. The baht has fallen 7.6% against the US currency so far this year, becoming Asia's second-worst performing currency behind the yen .
While a lower-yielding baht lagged other regional currencies, domestic factors should be more supportive than last year, Ms Alisara said, noting improved economic activity and Thailand's current account surplus.