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BANGKOK (Reuters) -The Bank of Thailand's governor on Friday stressed the need for central bank independence in setting monetary policy amid a lengthy disagreement with the government over whether or not interest rates should be cut to support the economy.
While lower interest rates could trigger short-term growth, there was a trade-off with inflation and they could also lead to vulnerabilities such as debt accumulation and speculation, Bank of Thailand (BOT) Governor Sethaput Suthiwartnarueput told a symposium.
Those risks would hold back long-term growth and could lead to crisis, he said, adding that central bank's independence was crucial for price stability.
His remarks come amid an extended stand-off between the government, which has repeatedly called for a rate cut to augment its fiscal stimulus, and the BOT which says rates are appropriate and structural issues are holding growth back.
Thailand's key interest rate has been at a decade-high of 2.50% for a year as the central bank has resisted the repeated calls for a cut. The next rate review is on Oct. 16.
Prime Minister Paetongtarn Shinawatra said earlier this year, before she became prime minister, that central bank independence was an obstacle to solving economic problems.
The government will launch its signature 450 billion baht ($13.6 billion) "digital wallet" programme later this month when it distributes 145 billion baht to vulnerable groups. The stimulus plan gives 10,000 baht each to up to 50 million Thais to be spent in their local communities.
The scheme has been criticised by economists, including two former central bank governors, as fiscally irresponsible.
The government rejects that, but has struggled to find sources of funding. It says the policy is necessary to energise the economy, which the central bank expects to grow just 2.6% this year, up from 1.9% in 2023.
Sources have told Reuters that the government plans to nominate former finance minister Kittiratt Na Ranong, a staunch critic of the BOT, as the next BOT board chairman.
($1 = 33.07 baht)
(Reporting by Orathai Sriring, Kitiphong Thaichareon and Thanadech Staporncharnchai; writing by Chayut Setboonsarng; Editing by John Mair)
