The World Bank said Thailand should wait for a clearer picture of the economy before easing monetary conditions, effectively backing the central bank’s interest-rate policy against the government’s calls for early easing.

The Washington-based lender also trimmed on Wednesday its 2024 gross domestic product (GDP) growth forecast for the country to 2.4% from 2.8%. It expects GDP expansion in Southeast Asia’s second-largest economy to quicken to 2.8% in 2025.

Prime Minister Srettha Thavisin has been embroiled in an escalating feud with the Bank of Thailand (BOT), which has defied pressure from the government to boost economic growth through rate cuts. Lingering inflation pressure from lower energy subsidies and a lack of clarity over the government’s US$13.5 billion cash handout have complicated the BOT’s policy decision, Kiatipong Ariyapruchya, the World Bank’s senior country economist said.

“Given current uncertainties, the central bank should hold the rate and wait for things to clear up before taking policy action, which may be cutting or holding rates,” Kiatipong told a seminar in Bangkok on Wednesday. The official didn’t directly address the dispute.

The premier has accused the BOT of hurting the economy with rate hikes of 200 basis points between August 2022 and September 2023 that has taken borrowing costs to a decade high 2.5%. Thailand’s growth has lagged neighbours in the past decade, averaging below 2%, while posting among the highest household debt ratio in the region at above 90%.

Ruling party chief Paetongtarn Shinawatra had described the central bank’s autonomy as an “obstacle” to resolving Thailand’s economic issues.

Governor Sethaput Suthiwartnarueput last month said that disagreements over monetary and fiscal policies stem from the “different hats” worn by the Bank of Thailand’s leadership and the nation’s government.
 
The central bank has resisted the government’s pressure, arguing that the economy is already gaining momentum, and noting the risks of the cash-handout programme. The International Monetary Fund in January said the BOT’s neutral stance remains appropriate, and actually suggested authorities stand ready to tighten if needed.

For his part, governor Sethaput has called on the government to undertake longer-term structural reforms and provide more investment to fire up the economy, including streamlining business regulations and entering more free-trade pacts to boost exports.

Still, a joint review of the 1-3% inflation goal by the central bank and the Finance Ministry is planned in August and September. The baht traded 0.1% higher against the dollar at 2.02pm local time on Wednesday.

The World Bank forecasts Thai inflation to average 0.7% this year, the slowest in the region due to lower-than-expected food and energy prices, before rising to 1.1% in 2025.

While Thailand’s public debt is projected to remain sustainable, the government faces increasing pressure for social spending and public investments to support an ageing population. The World Bank estimates the nation’s potential GDP growth at 2.7%, which can even go one percentage point higher with increased investment, Kiatipong said.

  - Bloomberg