The Haney Group Clark
BANGKOK (Reuters) - A growing mountain of debt owed by Thailand's households has sparked a tussle between the country's central bank and finance minister on the best way to steer Southeast Asia's second-largest economy through a period of slowing growth.
The central bank is warning about a possible credit bubble, implying higher interest rates are coming. But the finance minister, who lobbied hard for a recent rate cut, demands another one to counter the slowdown.
Faced with risks to both financial stability and growth, the central bank will probably opt to leave its policy rate where it is for many months, tackling the credit problem with targeted measures designed to avoid hurting the whole economy, economists say.
Government stimulus measures and easy monetary policy have driven household debt to a record high as consumers splurged on everything from cars and houses to electronic goods. Now, as the economy slows, more may face problems repaying their loans.
Household debt is equivalent to nearly 80 percent of gross domestic product, central bank governor Prasarn Trairatvorakul said last month, up from 77.5 percent in March and among the highest in Asia. A decade ago, it was 45 percent.
At 8.97 trillion baht ($287 billion) as of March, outstanding household debt was up 78 percent from 2008. It rose an average 13.6 percent a year between 2008 and 2012, twice the pace at which incomes grew. The ratio of debt payments to monthly income for Thai households was 33.8 percent in the first quarter, up from 29.6 percent in 2011, central bank data showed.
DAMPENING A BOOM
Neighbors Malaysia and Indonesia have moved recently to dampen a boom in credit rooted in money inflows due to easy U.S. monetary policy plus the demands of a growing middle class.
Since last year, Prasarn has signaled periodically that interest rates should eventually trend up. But after disappointing first-quarter GDP data and intense political pressure to ease, the central bank in May lowered its policy rate by 25 basis points to 2.50 percent.
The governor has cited the household debt level as a reason not to cut rates further.