The World Bank has revised its growth forecast for Thailand, citing uncertainties surrounding the government's $13.5 billion stimulus plan, but endorsed the central bank's decision to maintain the policy rate.

According to a report released on Wednesday, Thailand's GDP is expected to grow by 2.4% in 2024, down from the 2.8% forecast in April, due to weak exports and low public investment earlier in the year. Growth is anticipated to rise to 2.8% in 2025, supported by stronger domestic and international demand and increased government spending.

"Given current uncertainties, the central bank should hold the rate and wait for things to clear up before taking policy action, which may be cutting or holding rates," Kiatipong Ariyapruchya, the World Bank's senior country economist, told a seminar on Wednesday.

He also noted that lingering inflation pressures from reduced energy subsidies and uncertainty over the cash handout plan have complicated the central bank's monetary policy decisions.

These comments come amid tensions between the Bank of Thailand and Prime Minister Srettha Thavisin over interest rate policy. Although Kiatipong did not directly address the dispute, it is known that Srettha and his officials have urged the BOT to reduce the rate from its decade-high level of 2.5%. Thailand's economic growth has lagged behind its neighbours, averaging below 2% over the past decade, coupled with high household debt.

The Prime Minister has criticized the BOT for harming the economy with rate hikes amounting to 200 basis points between August 2022 and September 2023. Additionally, ruling party leader Paetongtarn Shinawatra has described the central bank's autonomy as an impediment to resolving Thailand's economic issues.

Governor Sethaput Suthiwartnarueput noted that the disagreements over monetary and fiscal policies arise from the different responsibilities of the Bank of Thailand's leadership and the government.

The central bank has resisted government pressure, arguing that the economy is already gaining momentum and highlighting risks associated with the planned cash-handout program. The International Monetary Fund supported the BOT's neutral stance in January, suggesting readiness to tighten policy if necessary.

Governor Sethaput has called on the government to implement long-term structural reforms and increase investment to stimulate the economy, such as streamlining business regulations and entering more free-trade agreements to boost exports.

A joint review of the 1%–3% inflation goal by the central bank and the Finance Ministry is planned for August and September.

The World Bank forecasts Thai inflation to average 0.7% this year, the lowest in the region due to lower-than-expected food and energy prices, with an increase to 1.1% expected in 2025.

While Thailand's public debt is projected to remain sustainable, the government faces growing pressure to increase social spending and public investments to support an ageing population. The World Bank estimates Thailand's potential GDP growth at 2.7%, which could increase by 1 percentage point with higher investment, according to Kiatipong.

Blloomberg