Thailand delays central bank chair over independence issues.

November 4, 2024

Thailand’s Deputy Prime Minister and Finance Minister, Kittirat Na Ranong, gestures during a Reuters interview at the Ministry of Finance in Bangkok on December 3, 2012.

BANGKOK, Nov 4 (Reuters) – The Bank of Thailand (BOT) announced that the independent committee responsible for selecting its board chairman delayed its decision by one week. The postponement comes amid warnings from former central bank governors who caution that political interference in monetary policy could harm the economy.

Concerns arose after the government nominated former finance minister Kittirat Na Ranong, a loyalist of the ruling party and vocal critic of the current BOT governor, for the position. Critics worry that Kittirat’s appointment could jeopardize the central bank’s independence, which is crucial for stable and effective economic management.

Since taking office last year, the government has clashed with the Bank of Thailand (BOT), repeatedly urging the central bank to lower interest rates and raise the inflation target. In October, the BOT surprised markets by implementing a rate cut.

On Friday, four former BOT governors and prominent economists expressed “deep concern” in an open letter over political appointments to the central bank’s leadership. They warned that such moves could seriously threaten the country’s long-term economic stability and growth.

On Monday, the Bank of Thailand (BOT) published comments made by Governor Sethaput Suthiwartnarueput at the Bank for International Settlements’ annual conference in June. He emphasized that without independence, central banks would struggle to fulfill their essential responsibilities.

Suthiwartnarueput noted that, despite central banks—including Thailand’s—performing well over recent decades, their independence is increasingly under threat. This trend, he warned, could undermine their ability to achieve core objectives.

The Bank of Thailand (BOT) later took down the transcript from its website and did not respond immediately to requests for comment.

Although the BOT chairman does not directly set interest rates, they lead the panel responsible for appointing members to the policy committee. The chairman will also play a role in selecting the next BOT governor when Sethaput’s term concludes in September 2025.

The seven-member committee is scheduled to reconvene on Nov. 11 to choose a new chairman, whose appointment must then receive approval from the finance minister, the cabinet, and the king.

The selection committee responsible for choosing the Bank of Thailand (BOT) chairman issued a statement via the central bank, explaining that they needed additional time to thoroughly review all relevant information, ensuring the effectiveness and efficiency of the decision-making process. This delay reflects the committee’s commitment to making a well-informed choice for the pivotal role of BOT chairman.

In addition to the government’s nominee, former finance minister Kittirat Na Ranong, there are two other candidates for the position, both nominated by the BOT. These candidates include a former permanent secretary of energy and a former university dean. According to Thai law, for every two candidates nominated by the central bank, the government is allowed to put forward one nominee. This arrangement has introduced a mix of candidates with varied backgrounds, aiming to provide the committee with a well-rounded selection.

Finance Minister Pichai Chunhavajira noted that the chairman’s role holds limited authority and mentioned that new names could potentially be introduced if needed. Pichai, who previously served on the BOT’s board himself, emphasized that the current delay in the selection process would not hinder the central bank’s ongoing work. “The committee has full discretion in its decision, and anything that benefits the country while achieving consensus is favorable,” he remarked, signaling a cooperative approach to finding the best candidate for the position.

The decision-making process has already seen an extension. Early last month, the committee decided to prolong the assessment period to ensure that each candidate undergoes thorough screening. This cautious approach highlights the importance of this role within the central bank, especially given recent political pressures and concerns over the institution’s independence. These pressures have come into sharper focus since Prime Minister Paetongtarn Shinawatra, before taking office, remarked that the BOT’s autonomy posed a challenge to addressing economic issues.

Despite these external pressures, the central bank recently cut its policy rate by 25 basis points to 2.25% on October 16, describing this as a “recalibration” rather than a response to political influence. Meanwhile, the government confirmed that it would maintain the inflation target range at 1% to 3% for the upcoming year, signaling a degree of stability in its approach to economic policy, even as debates over the BOT’s autonomy continue.

Source: www.reuters.com