The financial conditions of Thai households are fragile, says the head of its central bank

BANGKOK (Reuters): The financial conditions of Thai households are fragile amid high levels of debt, the head of the central bank said.

Investment was also low, Bank of Thailand Governor Sethaput Suthiwartnarueput told a symposium.

Thai household debt was 90.8% of GDP in March this year, among the highest in Asia.

The Bank of Thailand governor also backed the need for central bank independence in setting monetary policy, amid a long-running disagreement with the government over whether to cut interest rates to support the economy.

While lower interest rates could spark growth in the short term, there was a trade-off with inflation and could also lead to vulnerabilities such as debt accumulation and speculation, Sethaput said.

Those risks would hamper long-term growth and could lead to crisis, he said, adding that central bank independence is crucial for price stability.

His remarks come amid a prolonged standoff between the government, which has repeatedly called for a rate cut to boost its fiscal stimulus, and the BOT, which says rates are adequate and structural problems are holding back growth.

Thailand’s key interest rate was at a decade high of 2.50 percent for a year as the central bank resisted repeated calls for a cut. The next rate review is on October 16.

Prime Minister Paetongtarn Shinawatra said earlier this year, before becoming prime minister, that central bank independence was an obstacle to solving economic problems.

The government will launch its 450 billion baht ($13.6 billion) “digital wallet” program later this month, when it distributes 145 billion baht to vulnerable groups. The stimulus plan gives 10,000 baht each to 50 million Thais to spend in local communities.

The scheme has been criticized by economists, including two former central bank governors, as fiscally irresponsible.

The government denies this, but has struggled to find sources of funding. The policy is said to be needed to boost the economy, which the central bank expects to grow by just 2.6 percent this year from 1.9 percent in 2023.

Sources told Reuters the government plans to appoint former finance minister Kittiratt Na Ranong, a staunch critic of the BOT, as the next chairman of the BOT board.

($1 = 33.07 baht) (Reporting by Orathai Sriring, Kitiphong Thaichareon and Thanadech Staporncharnchai; Writing by Chayut Setboonsarng; Editing by John Mair) – Reuters