“Our worry is next year,” Mr Sethaput said in an interview with Bloomberg Television in Bangkok on Wednesday (Sept 3), reports the Bangkok Post.
The Bank of Thailand forecasts 1.7% growth in 2026, down from about 2% this year, but “with all this uncertainty, there’s some risk to that” if the government delays next year’s budget, he said.
Monetary policy space is limited with interest rates already at a multi-year low and where the central bank wants, he said. A material deterioration in the economic outlook would warrant another rate cut, he added.
Thailand’s credit rating could also be at risk without a change in the political risk overhang in the economy and without near-term fiscal consolidation, he said.
As Mr Sethaput was speaking, the stage for the downside scenario he fears was getting closer to materialising.
After the opposition People’s Party announced its support for a minority government headed by the Bhumjaithai Party, the governing Pheu Thai Party announced that it was seeking royal approval to dissolve the House of Representatives, which would lead to an election.
If an election is called, the vote would take place around late October or early November. In the absence of an election, a Bhumjaithai-led minority government would be obliged to dissolve the House within four months under the terms of its agreement with the People’s Party.
Mr Sethaput, 60, will complete his five-year term at the end of this month. He began his career at McKinsey in New York and the World Bank in Washington before eventually joining Thailand’s central bank, and presiding as governor across several finance ministers and prime ministers in that time.
Analysts have warned that a prolonged political impasse can weaken Thailand’s already fragile economy ‒ buffeted by the blow from US trade tariffs, a downturn in tourism and the highest household debt levels in Southeast Asia.
The government forecasts growth to average 2% this year, less than half the pace of expansion of regional peers such as Indonesia and the Philippines.
The central bank’s Monetary Policy Committee has cut the benchmark interest rate by a cumulative 100 basis points since October to 1.50%.
Central bank officials have said that while policy remains accommodative, any additional easing would happen only if there’s a “significant material deterioration” in its economic growth outlook, or emergence of unexpected shocks.
Thailand’s headline inflation has been in negative territory since April and consistently undershot the central bank’s 1% to 3% target range throughout this year.
Vitai Ratanakorn, a seasoned banker and rate-cut advocate, is set to take over as the new governor on Oct 1.
Mr Vitai has publicly favoured significant cuts to the central bank’s policy rate for a sustained period to revive the stagnant economy. More importantly, though, commercial banks must also pass on the reduction to customers, he said.
Although interest rates are decided through a majority vote by the seven-member MPC, Mr Vitai is expected to have influence over its direction as the head of the panel. He will chair the committee for the first time on Oct 8.
Mr Vitai previously headed the Government Savings Bank, which led government efforts to provide financial relief to small businesses and households who borrowed heavily during the pandemic.