TDRI Cautions Against Further Rate Cuts as Thailand Needs Deeper Economic Reforms
Think tank says interest rate cut offers short-term relief, but long-term structural reforms are crucial
- The Thailand Development Research Institute (TDRI) cautions against further interest rate cuts, stating that the current policy rate is sufficient for short-term support.
- TDRI argues that rate cuts are merely a short-term fix and their effectiveness is significantly diminished without long-term structural changes to the economy.
- The institute stresses that Thailand's economy requires deeper reforms, such as tackling high household debt and managing bad loans, rather than continued reliance on monetary policy.
Thailand's recent decision to cut its policy interest rate to 1.5% is a clear signal of a more accommodative monetary policy, but it is merely a short-term fix for the country's economic woes.
This is according to the Thailand Development Research Institute (TDRI), which warns that a lack of long-term structural reforms could significantly diminish the policy's effectiveness.
Nonarit Bisonyabut, a research fellow at TDRI, said the 0.25% cut was a necessary move by the Monetary Policy Committee (MPC) to mitigate the effects of a slowing economy.
He noted that businesses, particularly small and medium-sized enterprises (SMEs), will benefit from lower financial costs, while a boost in credit and household spending could help stimulate the economy.
However, Nonarit was quick to point out the limitations of this approach.
"Interest rate cuts are a short-term economic stimulus measure only," he said. "If there aren't sufficient long-term economic structural reform policies, the effectiveness of the policy could be significantly diminished."
When asked about the possibility of further cuts, Nonarit stated that a policy rate of 1.25% to 1.5% should be enough to support the economy in the short term.
Any additional cuts this year would likely be limited, as the committee needs to preserve its "policy space" for future challenges.
Nonarit believes that cutting the rate any lower would be inappropriate, arguing that the economy needs more than just monetary policy adjustments.
"The economy needs long-term structural reform policies," he explained.
He also pointed to other necessary measures, such as tackling high household debt and managing non-performing loans (NPLs) through the establishment of an Asset Management Company (AMC).
The TDRI's analysis underscores a key challenge facing Thailand's economy: a reliance on short-term stimulus rather than addressing the deeper, systemic issues that have left sectors like real estate weak and household debt high.
