Ministry, BoT prepare to set inflation target

The Finance Ministry and the Bank of Thailand are set to meet to establish the inflation target range for 2025, with the Finance Ministry proposing an increase of 0.5 percentage points over the current target range.
According to a source from the Finance Ministry who requested anonymity, Deputy Prime Minister and Finance Minister Pichai Chunhavajira is scheduled to meet on Tuesday with central bank chief Sethaput Suthiwartnarueput, along with other executives from the ministry and the central bank, to discuss setting the target framework for inflation management in fiscal 2025.
This discussion on the inflation target framework for the coming year takes place annually between the two agencies at the end of the year.
The goal is to provide direction for the central bank via the Monetary Policy Committee (MPC) to manage monetary policy so inflation stays within the target range, thereby supporting economic growth.
This time, the source said it is expected that the Finance Ministry will propose a target inflation range adjusted upward by about 0.5 percentage points from the 2024 level of 1-3% to a new range of 1.5-3.5%, with the range spread remaining at two percentage points.
According to the source, once the ministry proposes the adjusted inflation range, the central bank will review the suggestion and hold additional talks before finalising the proposed target range, which will then be submitted to the cabinet for approval and subsequent announcement for implementation.
The source also noted that the proposed increase to the inflation target range for next year to 1.5-3.5% is intended to give the central bank more leeway to reduce policy interest rates, with the range spread remaining unchanged at two percentage points.
The Finance Ministry’s approach is aimed at seeing the central bank’s policy interest rate lowered in alignment with the recent cut by the Federal Reserve of 50 basis points, the source said.
However, the Bank of Thailand may view a cut of 50 basis points as too significant and instead opt for a reduction of 25 basis points.
The claim that interest rate cuts have a slower impact than fiscal policy is inaccurate, as once interest rates are reduced, the loan interest payment burden for over 84 million accounts at financial institutions will immediately be lowered.
At its most recent meeting on Oct 16, the MPC voted 5-2 to reduce the policy interest rate by 25 basis points from 2.50% to 2.25%, effective immediately, to help ease the household debt burden and align with economic potential.