Agreement on Inflation Framework for 2025
Finance Minister Pichai Chunhavajira and Bank of Thailand (BOT) Governor Sethaput Suthiwartnarueput have reached a significant agreement to establish an inflation target of 1% to 3% for the upcoming year. This decision is part of a broader effort to coordinate fiscal and monetary policies effectively and prevent deflation.
Memorandum of Understanding Approved
The memorandum of understanding (MoU) outlining this inflation target was approved by the Cabinet on Tuesday. The MoU emphasizes that maintaining price stability is crucial for the Thai economy and reflects a commitment to collaboration between the government and the central bank.
- Long-Term Goals: The 1-3% inflation target is set as a medium-term goal, with an eye towards achieving stability in 2025.
Shift in Tone Between Government and BOT
Previous Tensions Addressed
This agreement marks a notable shift in tone between the Finance Ministry and the BOT, especially following previous tensions regarding interest rate policies since the Pheu Thai-led coalition came to power in 2023.
- Commitment to Coordination: The MoU highlights that both parties will work together to ensure inflation remains within the established framework, avoiding significant deviations either above or below the target.
Flexibility in Economic Framework
Adapting to Economic Conditions
The MoU acknowledges that the inflation framework will be flexible to accommodate the needs of Thailand’s small and open economy. Regular consultations will be held to ensure effective coordination between fiscal measures and monetary policy.
- Use of Monetary Tools: The BOT plans to utilize various tools, including policy rates and measures aimed at protecting the value of the baht, to maintain the inflation target.
Preventing Deflation Concerns
Shared Commitment Against Deflation
Both the Finance Ministry and the Monetary Policy Committee (MPC) of the BOT have expressed their determination to prevent prolonged deflation, which could signal economic weakness.
- Reporting Mechanism: The MPC is tasked with reporting its operations to the government every six months, ensuring transparency and accountability in managing inflationary pressures.
A Unified Approach to Economic Stability
The agreement between Thailand’s Finance Minister and the central bank represents a unified approach towards achieving economic stability through a clear inflation target. By fostering cooperation and maintaining open communication channels, both parties aim to navigate potential economic challenges effectively while safeguarding the interests of consumers and businesses alike.
