The Finance Ministry and the Bank of Thailand are preparing to set the inflation target range for 2025, with the ministry proposing a 0.5% increase over the current range.
A source from the Finance Ministry, who wished to remain anonymous, revealed that Deputy Prime Minister and Finance Minister Pichai Chunhavajira met with central bank chief Sethaput Suthiwartnarueput yesterday, October 28. The meeting with other executives from both the ministry and the central bank discussed the inflation target framework for the fiscal year 2025.
This annual discussion between the two agencies is crucial for setting the direction for the central bank’s Monetary Policy Committee (MPC) to manage monetary policy, ensuring inflation remains within the target range and supports economic growth.
The Finance Ministry is expected to propose adjusting the target inflation range from the current 1 to 3% to a new range of 1.5 to 3.5%, maintaining a spread of two percentage points, the source stated.
“The proposed increase to the inflation target range for next year is intended to give the central bank more leeway to reduce policy interest rates, with the range spread remaining unchanged.”
Once the ministry proposes the adjusted inflation range, the central bank will review the suggestion and engage in further discussions before finalising the target range. The final proposal will then be submitted to the Cabinet for approval and subsequent implementation.
The Finance Ministry’s strategy aims to see the central bank’s policy interest rate lowered in alignment with the recent 50 basis points cut by the Federal Reserve, the source said.
“While the Bank of Thailand may view a 50 basis points cut as too significant, it may instead opt for a reduction of 25 basis points.”
Contrary to claims that interest rate cuts have a slower impact than fiscal policy, a reduction in interest rates would immediately lower the loan interest payment burden for over 84 million accounts at financial institutions, reported Bangkok Post.
At its most recent meeting on October 16, the MPC voted 5-2 to reduce the policy interest rate by 25 basis points from 2.50% to 2.25%, effective immediately, to help ease household debt and align with economic potential.
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