IMF Advise Thai Central Bank to Lower Rates

The International Monetary Fund (IMF) has advised Thailand to cut interest rates as the country experience a slowing economy coupled with lower inflation.

According to IMF, there exists “a scope for further monetary easing.” They added that the negative output gap, the weaker consumer prices, and the downside risks merit a supplementary “monetary accommodation.” IMF believes that it is time for the policy makers of Thailand to change rates because the lack in easing will, expectedly, keep inflation below the target for years. Furthermore, the IMF believes that “tighter macroprudential policies can safeguard financial stability in a low interest rate environment.” They think that Thailand is in dire need of expansionary fiscal and monetary policies to bolster the Thai economy who is lagging behind most Southeast Asian nation.

IMF has expressed concern upon the release of economic reports in Thailand. Consumer prices has increased for the first time in April after more than a year of constant declines. The inflation rate remains below the target of 1% to 4% at 0.5% according to IMF, putting the blame of the lower-than-expected data on cheaper oil price and weaker demands.

The Thai Central Bank has refused to acknowledge the need for monetary easing saying that the move to lower rates will supply limited support to the economy. At last meeting, the policy makers announced that it will keep resilient in its unchanged rates which has been in effect for the last eight consecutive meetings since June. They said that the easing will have little effect as the root of the problem is caused by “global and domestic structural problems.”

The military coup of May 2014 has put the Thai junta into power led by then General Prayut Chan-o-cha who is now the Prime Minister. Under his command, economic stimulus measures amounting to more than 645 billion baht or $18 million dollars have been carried out since September 2015. The biggest source of the contracting economy is the lower exports that lost 1.4% in the first quarter. Meanwhile, a booster for the economy has surprisingly come from tourism which grew by 15.5% in the first quarter.

While IMF’s suggestions remain unacted upon, it still gave Thailand a 3% expansion forecast for 2016 and a 3.2% expansion for 2017. The World Bank predicts 2.5% and 2.6% for 2016 and 2017 respectively.

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