Thailand Sees Scope for Fiscal Support, Lower Interest Rates

(Bloomberg) --

Thailand’s government is ready to take further action to support an economy growing at its slowest pace in nearly five years, and sees room for further interest-rate cuts, the finance minister said.

Weeks after passing a stimulus program worth more than $10 billion, the government still has the fiscal space to do more, Finance Minister Uttama Savanayana said Wednesday in a Bloomberg Television interview in Bangkok.

“The government deems it very critical that we act in a timely manner, in a convincing manner,” he said, adding that the leadership would be “very prudent” about any moves.

Thailand’s export-reliant economy has slowed sharply this year, hit by the U.S.-China trade war and a surging currency. The government’s fiscal package came a few days after a surprise Bank of Thailand interest-rate cut that did little to dent the baht.

Cuts Coming?

Thailand’s gross domestic product rose 2.3% in April through June from a year earlier, sapped by struggling exports, slowing tourist arrivals and a drought. The central bank has responsibility for setting interest rates, and Uttama sees the possibility of it undertaking further easing to boost growth.

“It’s still early to say that there will be another” rate cut, he said. “We will monitor the situation. I think we have room for that.”

The baht weakened as much as 0.4% against the dollar from Tuesday’s close after Uttama flagged the possibility of looser monetary policy.

Bank of Thailand Governor Veerathai Santiprabhob said earlier this month that a planned economic policy coordination committee with the Finance Ministry won’t affect the central bank’s monetary policy decisions.

Thai officials are particularly vexed by the baht, which has gained more than 6% against the dollar this year as the best-performing emerging-market currency. The Finance Ministry consults closely with the Bank of Thailand on the baht, but it’s the central bank’s responsibility to decide on currency policy, Uttama said.

Record Reserves

Near-record foreign reserves are a sign of efforts to restrain the baht, but heightened U.S. oversight of currency policies limits the Bank of Thailand’s scope to step up intervention substantially. At the same time, risks from elevated household debt reduce the monetary authority’s room to cut borrowing costs aggressively.

Uttama noted risks from the U.S.-China trade war -- “especially as things are still unfolding on the global stage” -- but said he believes the economy can still reach the government’s 3% growth forecast for the year.

“It’s clear that everybody is hurt by this, and the sooner it’s over, the better for everyone,” he said of the trade war. “Hopefully that would be not too long in the future.”

He also seconded a call from Indonesia’s finance minister for a coordinated response to the global economic slowdown, saying it’s something Southeast Asian nations should discuss.

Concerns linger that the coalition government that took office in July with a thin lower-house majority may not last the full four-year term.

“I expect the government to be in place -- I don’t know for the full term or not -- but for a long time,” Uttama said.

--With assistance from Yumi Teso.

To contact the reporters on this story: Suttinee Yuvejwattana in Bangkok at suttinee1@bloomberg.net;Haslinda Amin in Singapore at hamin1@bloomberg.net

To contact the editors responsible for this story: Sunil Jagtiani at sjagtiani@bloomberg.net, Michael S. Arnold, Chris Bourke

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