Anyone know why Thailand has barely increased official interest rates?

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andrew99999
Posts: 989
Joined: Fri Jul 13, 2018 8:14 pm

Anyone know why Thailand has barely increased official interest rates?

Post by andrew99999 »

Been living there for many years, and have noticed Thailand has been slow to increase rates at all, and only just increased it 0.25% for the second time.
https://tradingeconomics.com/thailand/interest-rate

There is definitely inflation going on.

Anyone have any idea why it is so different to the rest of the world?
MH2
Posts: 65
Joined: Thu Oct 28, 2021 3:46 am

Re: Anyone know why Thailand has barely increased official interest rates?

Post by MH2 »

andrew99999 wrote: Thu Nov 24, 2022 8:16 am Anyone have any idea why it is so different to the rest of the world?
Thailand has a fairly large household debt load.

I wouldn't be surprised if it's a combination of trying to keep the baht relatively low while using this as an opportunity to safely inflate away some of the private/consumer THB denominated debt.
jg12345
Posts: 309
Joined: Fri Dec 11, 2020 1:03 pm

Re: Anyone know why Thailand has barely increased official interest rates?

Post by jg12345 »

Disclaimer: I am not an expert on the context of Thailand. and I know more micro than macro economics.

Some hypotheses nevertheless:
1) I saw that Top 3 imports countries are China, Nigeria and Russia, and none of these (except Russia) has been appreciating much, or at least not even close to the dollar. Top 3 export is USA, two EU countries. This might suggest potentially that channels through which increase in interest rates of foreign countries could affect interest rate in Thailand are in action.
a) the reason why a move up in rates of another central bank pushes rates up in, say Thailand, country, is that interest rates going up in US might "export inflation": i.e., demand from US/EU goes up for goods from Thailand goes up as their currencies get stronger, prices go up in Thailand, inflation expectations go up, prices-salary spiral starts, Thailand has to raise interest rates.
b) raising interest rates is painful for the domestic growth

If any of the events in that chain do not happen (e.g., prices are not going up much, or expectations do not go up much so there is either no/acceptable prices-salary spiral), then there is no reason for Thailand to raise rates and inflict pain to its domestic economy. Is there any reason why Thai people may have their inflation expectations more anchored than US or EU counterparts? You're probably better placed than me to answer that.

2) I would also be looking into whether there was productive capacity available to increase production. most of Thai exports look like it's manufacturing. if there was productive capacity available, then why prices would go up to hyperinflation? increased demand would only fill that. RIght now economy forecast to go up at 4% next year. If imports from countries with appreciating currencies are not so important (as the point above suggests), then you have:
- more exports to countries with appreciating currencies fill the productive capacity
- more imports from countries without appreciating currencies
- productive capacity being filled
- labor employment and costs (to capital owners) would go up
- prices will go up (not into hyperinflation!) - but that's ok for most Thai people so long that real wages are flattish
- people earning from domestic capital and domestic labor should be happy with this

3) [less likely IMHO, although probably part of the above but in a minor way]. the objective of "2% inflation" comes out of thin air (I mean, why 2 and not 1 or 3 or 5? who decides that 2 is "stable prices for a health economy" but 2.5% is not "stable prices for a healthy economy"?), and there are at least some economists that state that inflation of a few more points is beneficial, and the reason why central banks target 2% is because they're captured by top 1% richest people who are owners of financial assets that do not grow in line with inflation (i.e., stocks, and nominal bonds). If some economists in Thai CB think that, well, then it makes sense to let inflation run at around 5%.

-- oh, edit on debt load: yes, if that's high that would increase the pain to the economy caused by raising interest rates, and would make the cost of raising interest rates even higher
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