Thailand unexpectedly delays naming new central bank chief

[BANGKOK] Thailand’s expected appointment of veteran banker Vitai Ratanakorn as the next central bank governor was delayed by at least a week, a sudden twist in the selection process for the closely-watched position.

Vitai, president of the Government Savings Bank, was poised to be nominated by Finance Minister Pichai Chunhavajira for the Cabinet’s confirmation, people familiar with the matter said. Before entering Tuesday’s Cabinet meeting, Pichai told reporters he planned to propose the Bank of Thailand appointment, but later said more time was needed and that the Cabinet will consider the matter next week.

“It’s an important appointment, and I submitted it a little too late. The Cabinet needs to look at this a little more carefully,” Pichai said, while declining to identify his candidate. He denied there were attempts to block the nomination or issues raised over his nominee’s qualifications. 

Krungthep Turakij newspaper reported later on Tuesday that the documents submitted by Pichai didn’t include proof that the nominee’s qualifications had been vetted by a number of agencies. It didn’t name its sources.

The 54-year-old Vitai, an advocate of lower rates and coordinated fiscal and monetary policy to help revive the faltering economy, is widely seen as a proxy candidate for the Ministry of Finance.

But his appointment could renew concerns about the independence of the BOT, which under governor Sethaput Suthiwartnarueput had resisted pressure for rate cuts and a higher inflation target. Similar tensions have been seen elsewhere, with US President Donald Trump having publicly derided Federal Reserve chair Jerome Powell and called for deeper rate cuts from the Federal Reserve. 

In an interview with Krungthep Turakij newspaper on June 24, Vitai said rate cuts are a “key and necessary tool” to tackle high household debt, suggesting that while he understood the BOT’s concern that lower rates could increase indebtedness, the benefits are clear. 

“Lowering interest rates, injecting money or lowering taxes alone cannot solve all the problems,” he said. “Monetary and fiscal policies and measures from other regulatory agencies must be coordinated in the same direction and continuous.”

After the Cabinet meeting ended without an appointment, the baht pared some losses, falling 0.1 per cent against the dollar, while the benchmark 10-year sovereign bonds held on to their gains, with the yield dropping 3 basis points.

“If the economic situation gets more dire, a rate cut or two may be justified in the near term,” but structural reforms, not “quick fixes” will be needed to improve longer-term prospects, said Erica Tay, an economist at Maybank Securities.

“We are hopeful that the BOT’s decisions will remain grounded in rigorous analysis,” she said.

Under Vitai, state lender GSB spearheaded efforts to provide financial relief to small businesses and households burdened by heavy debt. The other finalist in the selection process, Roong Mallikamas, is a deputy governor at the central bank who was widely seen as a continuity candidate.

“We believe BOT policy outlook will depend on a range of domestic factors like inflation and growth outlook,” said Wee Khoon Chong, senior Apac market strategist at BNY. “We see limited space for aggressive rate cuts. Supportive BOT monetary policy and government fiscal policy in our view is a more effective combination.”

The policy rate should be significantly lowered for a sustained period to revive the stagnant economy, Vitai told local media after applying for the governor’s role. But more important is the need to ensure commercial banks pass on the reduction to customers. 

“This is a deep and prolonged downturn, and while interest rate cuts are necessary, they are not enough,” Vitai said, according to a Bangkok Post report on June 23. “Additional supportive measures are required.”

The next Bank of Thailand governor faces a challenging economic landscape, including the region’s highest household debt, sluggish credit demand, negative inflation and weakening consumption. Despite a cumulative 75-basis point reduction in borrowing costs since October, growth lags that of neighbours Indonesia, Malaysia and Thailand, and is further threatened by the prospect of a punitive US tariff on Thai exports and a slowdown in foreign tourist arrivals.

That’s on top of domestic instability which earlier this month saw a court suspend Prime Minister Paetongtarn Shinawatra from office.

The current governor, Sethaput, has repeatedly spoken of the importance of central bank independence, having repeatedly faced government calls to lower borrowing costs. A backlash from former BOT chiefs and economists last year also helped thwart a government bid to install its favoured nominee as BOT chairman, a separate role that’s influential in appointments and other matters.

The BOT last month left the key rate unchanged at 1.75 per cent, citing the need to preserve limited policy space to respond to future shocks. 

Vitai has defended himself after being criticised by an ex-BOT governor who said the banker wouldn’t be able to make independent decisions because of his ties to the government.

“My experience and strong self-identity offer the confidence that I can make decisions independently, based on principles,” he said in a Facebook post on July 8. “Seeking the best interest of the country is important, without being influenced by any group.”

The Cabinet will likely discuss the governor appointment at its meeting on July 22 if all the required paperwork is in order, Secretary-General Natjaree Anuntasilpa told reporters. Documents related to the matter have to be examined thoroughly before being considered by the Cabinet, she said. BLOOMBERG