Bangkok: The Thai economy is anticipated to encounter volatility in the latter half of the year, driven by fluctuations in energy prices and changes in global monetary policy.
According to Thai News Agency, Dr. Don Nakornthap, Assistant Governor of the Monetary Policy Department at the Bank of Thailand (BOT), shared insights on Thailand's future economic direction, focusing on interest rates, inflation, and substantial government borrowing.
The Monetary Policy Committee (MPC) recently decided unanimously to maintain the interest rate at 1.0 percent. Dr. Don explained that this decision was a balanced assessment of risks, considering the current economic climate. Raising interest rates could worsen the economic impact caused by the ongoing energy crisis, while lowering them might increase the risk of inflation. Despite inflation being slightly lower than expected in April at 2.9% due to a drop in oil prices, there is potential for it to exceed 3% in the near future. However, the Bank of Thailand considers this a temporary situation, anticipating a slowdown next year.
Examining the 400 billion baht Emergency Decree, which constitutes 2% of GDP, Dr. Don highlighted its potential as both a short-term stimulus and a tool for long-term sustainability. The Bank of Thailand estimates that allocating 200 billion baht for relief payments and another 200 billion baht for investment could stimulate economic growth by approximately 0.6% this year, potentially leading to overall GDP growth of 2.1%.
Dr. Don emphasized the importance of strategic allocation of these funds, particularly in the energy transition investment budget, which aims to enhance economic potential in the long term. While cash handouts can stimulate consumption immediately, they are seen as a one-time expenditure that may lower the GDP base once the measures end.
Concerns were also raised regarding public debt, which currently stands at approximately 66% of GDP. With the additional borrowing, it is expected to rise to 68%, still within the ceiling. However, future borrowing plans could push it to the debt ceiling by 2028, necessitating prudent use of funds to maintain policy space for potential future crises.
Thailand's economic resilience is bolstered by strong foreign exchange and high international reserves, with Moody's maintaining the country's credit rating. However, household debt remains a concern, with levels higher than in most other countries. The Bank of Thailand continues to promote debt relief programs to address this issue.
In light of the vulnerable economic situation, Dr. Don advised businesses and individuals to maintain liquidity, be cautious with spending, and seek low-interest funding sources to sustain operations. True economic sustainability, he noted, can only be achieved through strategic investments in infrastructure rather than temporary relief measures.