Thai Rate Panel Warns Against Broad Economic Stimulus as War Unfolds

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(Bloomberg) — Thailand’s central bank cautioned against broad consumption stimulus, saying such a move could constrain fiscal flexibility as the economic fallout from the Middle East conflict continues to unfold.

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Members of Bank of Thailand’s Monetary Policy Committee, which voted to hold the rate at a near four-year low last month, viewed consumption-led measures as offering only temporary support, according to minutes of its April meetings released on Wednesday. Instead, policymakers should prioritize structural transformation, while preserving fiscal space amid heightened global uncertainty, it said.

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The rate panel’s warning against sweeping stimulus comes amid a move by Prime Minister Anutin Charnvirakul to borrow 400 billion baht ($12 billion) to fund a cash handout and assistance to sectors hit by the energy shock unleashed by the Middle East conflict. He also plans to use a part of the new debt to accelerate Thailand’s transition from fossil fuels to renewable energy.

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This has faced pushback from the country’s main opposition parties, which have sought a court ruling on the legality of the emergency decree issued to back the borrowing plan. They argued that current conditions do not warrant such a move as the economy is still expanding and the ratio of public debt to gross domestic product is nearing a voluntary cap of 70%. 

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Finance Minister Ekniti Nitithanprapas has defended the borrowing plan, saying “Thailand’s economy is currently facing a complex crisis with no clear end in sight.” He has vowed to press ahead with the debt plan. 

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The Bank of Thailand expects economic growth to decelerate sharply to 1.5% this year from 2.4% last year.

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The central bank said on Wednesday that the stimulus package could add as much as 0.6 percentage point to expansion this year, then reduce growth by 0.4 percentage point in 2027 due to a higher base effect. Its impact on inflation is likely to remain limited amid weak domestic demand, according to a BOT presentation at an analysts’ meeting.

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The rate panel said managing the impact of the war requires a coordinated policy mix spanning monetary, fiscal and targeted financial measures. Policymakers should balance efforts to cushion short-term economic effects with the need to support longer-term structural adjustments, according to MPC minutes.

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The MPC voted to hold the benchmark policy rate at 1% at the April 29 meeting, judging it appropriate as economic growth is expected to moderate due to the conflict. Inflation, meanwhile, is projected to rise in the near term due to supply-side pressures before easing next year as those factors gradually subside, according to the committee.

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The BOT “can afford to wait longer” on a rate hike unlike some other central banks even though the nation faces the risk of higher prices, Assistant Governor Don Nakornthab told analysts on Wednesday. The next rate move will depend on data, he said.

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The consumer price index rose 2.89% in April from a year earlier, marking the first increase in more than a year and nearing the top end of the central bank’s 1%-3% target range as higher oil prices sparked an increase in food and transport costs. The gauge may jump to as high as 5% in the coming months though the average reading for the year will still remain within the target band, Ekniti said Monday.

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(Updates with comments from BOT official on rates in penultimate paragraph.)

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