Economists Urge Bank of Thailand to Consider Quantitative Easing
Economists are increasingly proposing that the Bank of Thailand (BoT) should explore the feasibility of quantitative easing (QE) as a potential tool to bolster its monetary policy, especially if conventional interest rate cuts prove to be ineffective. Pipat Luengnaruemitchai, chief economist at Kiatnakin Phatra Financial Group (KKP), believes the central bank is already studying the use of QE as a supplementary measure to its accommodative monetary stance and to stimulate the economy. KKP Research anticipates that the Monetary Policy Committee (MPC) may need to lower the policy rate from 1.5% to as low as 1% by the first quarter of 2026. According to Mr. Pipat, the central bank is exploring a version of QE specifically tailored to Thailand’s economic framework, which is primarily driven by its banking sector. The article provides various examples of how QE has been implemented globally. For example, the US Federal Reserve bought large amounts of government bonds to stimulate the economy after the 2008 financial crisis, while the European Central Bank (ECB) used targeted loans to encourage commercial banks to lend to businesses and households. The Bank of Japan (BoJ) also implemented large-scale purchases of financial assets and introduced yield curve control as an additional monetary tool.
The Efficacy of Rate Cuts and Limited Policy Space
Amonthep Chawla, chief economist at CIMB Thai Bank, also expects the Bank of Thailand to consider quantitative easing as one of several tools to reinforce its current monetary policy and stimulate the economy. This consideration comes in light of the fact that despite four consecutive policy rate cuts, totaling 100 basis points since October 2024, loan growth within the banking sector has continued to contract. The MPC is widely expected to implement another rate cut in December, which would bring the policy rate down to 1.25%. A recent statement from the MPC following its August 13th meeting reaffirmed its belief that monetary policy should remain accommodative to support the struggling economy. However, the committee also acknowledged that it needs to ensure financial stability while operating within a limited policy space. The MPC secretary, Sakkapop Panyanukul, noted that while there is still room to lower the policy rate, continuous cuts diminish the effectiveness of monetary policy transmission, making it crucial to weigh future decisions carefully.
Navigating Economic Challenges and Future Projections
The call for the Bank of Thailand to study unconventional monetary tools highlights the depth of the economic challenges the country is facing. Despite the accommodative stance and continuous rate cuts, the conventional tools are not having the desired effect of stimulating loan growth and boosting economic activity. The focus is shifting to finding alternative methods to inject liquidity and support the economy. While the MPC still believes it has some room to maneuver with interest rates, the potential for a “liquidity trap” or a “transmission problem,” where rate cuts do not translate into increased lending, is a growing concern. The suggestion of quantitative easing demonstrates a forward-thinking approach by some economists who believe that a more aggressive and non-traditional intervention may be necessary to support Thailand’s long-term economic stability and help it overcome its current headwinds. The debate over this policy reflects the complexity of the economic landscape and the need for new solutions.
