Central bank of the year: Bank of Thailand

Against a backdrop of heightened global economic uncertainty and a domestic economy beset by structural challenges, the Bank of Thailand (BoT) has deftly balanced its support of the economy with a strong commitment to long-term price and financial stability.

It has achieved this while navigating significant political pressure. The central bank has defended its autonomy in monetary policy decision-making, while at the same time spearheading a multi-faceted reform agenda to enhance Thailand’s financial services. The central bank’s overarching focus has remained steadfast: to safeguard stability while future-proofing the financial system.

Anchoring stability

The BoT effectively completed monetary policy normalisation towards the end of 2023 when its policy rate rose to 2.5%. This marked the culmination of a post-Covid-19 monetary policy approach that was gradual, in contrast to the aggressive tightening by many other central banks. In 2024, the central bank returned interest rates to a roughly neutral level of 2.25%.

Underpinning the BoT’s strategy was the judicious judgement that the inflationary spike in Thailand was driven almost entirely by temporary supply factors that monetary policy could ‘look through’. This meant more weight could be given to supporting the economic recovery.

Some were concerned at the time that the Bank of Thailand may have been too sanguine in raising interest rates. However, BoT governor Sethaput Suthiwartnarueput, told Central Banking in early 2023 that, unlike many of its peers, the central bank tightened policy even before Thai GDP had recovered to its pre-pandemic levels (so, earlier than peer central banks) and stressed there was less likelihood of a wage-price spiral in the country, meaning higher rates were not required. “That is the reason we felt a gradual, measured approach towards rate increases made sense, particularly, as we are also experiencing high levels of household debt,” Sethaput said.

Experts believe this approach enabled a smooth transition to a neutral policy rate without overshooting, supporting effective disinflation in Thailand. Inflation returned to pre-pandemic levels from its peak in just six months, without disrupting the economic recovery.

A distinguishing feature of the BoT’s approach was its use of complementary policy tools in a relatively integrated manner to improve economic policy trade-offs. Given high levels of household debt, the central bank notably implemented a set of targeted financial measures aimed at maintaining stability and addressing specific vulnerabilities. For example, through its ‘responsible lending’ programme, debt restructuring was mandated for ‘at-risk’ as well as ‘troubled’ retail loans. Building on this initiative, a major government programme was launched at the end of 2024 to support accelerated debt repayment by fragile groups.

Preserving policy space amid high uncertainty reinforced the BoT’s flexibility to adapt to diverse economic scenarios. This was accompanied by consistent, clear communication focused squarely on the outlook and eschewing excessive data-dependency. The central bank looked through short-term variation to ensure its policy did not add noise to the financial market.

Political attacks

But its cautious approach did not shield the central bank from executive reproach, meaning the BoT had to uphold its operational independence despite sometimes receiving intense criticism. Navigating the political landscape was no simple task. During a turbulent period that saw three prime ministers and three finance ministers within two years, the Bank of Thailand faced repeated attacks from government-affiliated officials that wanted it to loosen its monetary policy.

In the face of mounting political pressure to cut interest rates around late 2023, the Bank of Thailand strengthened its communications with the public and aimed at demystifying the bank’s policy-making process and bolstering public trust in its decisions.

Preserving policy space amid high uncertainty reinforced the BoT’s flexibility to adapt to diverse economic scenarios. This was accompanied by consistent, clear communication focused squarely on the outlook and eschewing excessive data-dependency

As a part of its public outreach, the BoT devoted a special issue of its magazine and a social media video clip (‘MPC behind-the-scenes’ project) to explain the entire process of monetary policy-making, from data gathering to policy deliberation to post-meeting communication. The contents included interviews with senior central bank staff and former MPC members who were directly involved in the process. All of this uses simple language specifically catered to the general public.

Nonetheless, the attacks continued from those close to former prime minister and telecoms mogul Thaksin Shinawatra, who is said to be the power behind the ruling Pheu Thai political party and its recent prime ministers.

The assault on BoT policy stems from Thaksin’s reported view that the BoT is too independent – he dismissed governor Chatumongol Sonakul in 2001 – and that its officials, while academically highly qualified, lack sufficient real-world experience. Thaksin has reportedly also said the BoT’s efforts to support financial stability have resulted in the central bank absorbing too much liquidity from commercial banks, which has made it difficult for businesses to secure funding. He claims this is why the government has been forced to resort to stimulus efforts, such as its $14 billion ‘digital wallet’ scheme – handouts to individuals pitched at boosting consumption, though some view it as an effort to secure voter loyalty.

The country’s two most recent prime ministers clashed with the BoT over monetary and economic policy, with the incumbent describing the BoT’s independence as “an obstacle”. The BoT governor’s position is now protected by the 2008 Bank of Thailand Act. But, in an apparent effort to influence the BoT, the government nominated outspoken Bank of Thailand critic and former finance minister Kittiratt Na-Ranong to become the fifth chair of the central bank since the passing of the 2008 Act. 

While the chair is not involved in the setting of monetary policy, which is decided by the bank’s monetary policy committee (MPC), they do oversee the BoT’s business and operations. The chair also has the legal powers to evaluate the governor’s performance, and to nominate and select external members of the MPC.

It’s nothing personal

Instead of getting involved in a public fracas with the executive, the BoT, under governor Sethaput, demonstrated exceptional resilience and strategic acumen in steering the central bank’s communications. Despite repeated calls from key government figures to implement immediate rate cuts to stimulate short-term economic growth, Sethaput defended the BoT’s independence, emphasising that monetary policy decisions must rest on economic fundamentals rather than political agendas.

The BoT also stressed the need to prioritise long-term financial stability over temporary gains. Sethaput expressed concerns regarding the government’s populist stimulus initiatives, such as the large, unconditional cash transfers (the ‘digital wallet’ scheme), cautioning that while these may boost consumption briefly, they fail to address Thailand’s structural economic needs.

Instead, the BoT has advocated for sustainable reforms focused on productivity enhancement, targeted public and private investment, and regulatory improvements to foster long-term growth. Thailand’s high household debt is being addressed through a gradual debt deleveraging process, moving away from broad pandemic-era relief. This approach includes responsible lending, risk-based pricing and macro-prudential measures that emphasise sustainable debt reduction and long-term financial health. By prioritising household debt restructuring and fair access to credit, the BoT has striven to address structural issues that could otherwise impede Thailand’s economic potential.

“My assessment is [Sethaput’s] done a very good job,” Tarisa Watanagase, a former governor of Bank of Thailand, tells Central Banking. “He doesn’t argue with the government in public. That would have been confrontational. Instead, he gave talks and interviews on the reasons why the prevailing interest rate was appropriate.”

Tarisa also points to Sethaput’s efforts to make counter proposals that would refine government initiatives. “He also suggested more targeted measures such as increasing the disbursement speed of government spending and household debt restructuring,” she says. “These communications help raise public understanding of important economic issues and confidence in the central bank.”

The former governor herself felt compelled to speak out against government interference in October 2024. “Recently, it is expected that the government will send its people to be the chairman of the board of the Bank of Thailand, with the purpose of being able to use the BoT as a tool to implement government policies,” Tarisa said at the time. “If this happens, disaster will certainly follow for the Thai economy, just like what we have seen in other countries where the government has intervened in the central bank.”

By November, four previous governors and more than 800 economists had spoken out publicly against Kittiratt’s appointment as chair of the Bank of Thailand, highlighting the depth of support for central bank autonomy.

After long deliberations and several delays, the selection committee ultimately supported Kittiratt for the chair role. But, in a final twist, Thailand’s Council of State later determined he was ineligible because he had served as an adviser to a prime minister within the past year and could not be considered politically neutral. As a result, a search for a new chairman was undertaken.

A future-ready financial landscape?

Despite political distractions, the BoT continued to push several major initiatives to ensure Thailand’s financial system remains resilient and embraces future developments, particularly with regards to digital advancement and environmental change.

With its digital payment infrastructure achieving wide domestic adoption through its instant payments system, PromptPay, and the launch of PromptBiz, for cross-bank digital transmission of trade and payment data, the BoT also continued to pursue cross-border initiatives. The aim is to increase the availability, reduce the cost and improve the speed of payments both at home and abroad. Thailand now has cross-border QR code payment linkages with Cambodia, Hong Kong, India, Indonesia, Japan, Laos, Malaysia, Singapore and Vietnam, as well as an instant payment corridor with Singapore. As a founding member of ‘Project Nexus’, the BoT is actively working to link instant payment systems across several jurisdictions.

The launch of a ‘financing the transition’ programme was conducted to help spur the development of practical and scalable financial products to help businesses in key economic sectors, especially small firms, in transitioning towards sustainability practices

The central bank has also co-ordinated with the Central Bank of the United Arab Emirates, the Digital Currency Institute of the People’s Bank of China, the Hong Kong Monetary Authority and the Saudi Central Bank to develop a cross-border wholesale CBDC, with Project mBridge now close to production. At the same time, new initiatives on cross-border tokenisation use-cases for trade payments and carbon credits were initiated with the HKMA (Project San and Project Ensemble) in October 2024.

Meanwhile, the BoT launched the ‘your data’ initiative in partnership with local regulatory agencies and financial institutions. This represents an important milestone for the BoT’s open data efforts, laying the groundwork for open data ecosystems that should foster transparency and data portability within the financial sector. Another key component of Thailand’s evolving financial landscape is the issuance of ‘virtual banking’ licences. Applications by interested parties are currently being reviewed, with the results expected in 2025.

Meanwhile, the BoT and the Ministry of Finance are spearheading the establishment of the National Credit Guarantee Agency to enhance access to finance for small to medium-sized enterprises. The launch of a ‘financing the transition’ programme was conducted to help spur the development of practical and scalable financial products to help businesses in key economic sectors, especially small firms, in transitioning towards sustainability practices.

And, internally, after years of preparatory work, the BoT’s ‘regulatory data transformation’ project has gone operational. This represents a major shift in the way regulatory data is structured, from report-based to model-based. By increasing the level of data granularity, supervision is expected to be more proactive and targeted, and analysis of financial conditions and financial stability risks should be strengthened.

Risk and reserves

During the past year, the BoT also significantly upgraded its internal risk management framework, elucidating a precise risk appetite for activities or policies and increasing its emphasis on the quantification of key risks. The clearer articulation of risk tolerance across strategic, operational, financial and reputational risks has fed back into assessments of policy trade-offs, allowing for more robust and informed decision-making.

This was highlighted when the BoT undertook a nine-month re-examination of its reserve management framework in 2024.

The goal was to ensure the BoT’s approach was able to keep up with changing global financial market dynamics, while also considering the bank’s risk appetite and internal resource constraints, including costs related to accounting, risk management and legal functions. Among the aspects examined were the objectives of the central bank’s reserve management to support financial stability and monetary policy conduct, back up bank notes in circulation and preserve global purchasing power.

Unwavering commitment

The Bank of Thailand’s forward-looking policies and the unwavering commitment of its officials to make independent decisions have fortified Thailand’s economy, and showcased the resilience, integrity and professionalism of central bank staff. By standing firm in the face of political pressure, BoT policy-makers have helped to preserve policy space amid turbulence, reinforcing the central bank’s flexibility to adapt to an uncertain economic future. 

The Central Banking Awards 2025 were written by Christopher Jeffery, Daniel Hinge, Daniel Blackburn, Joasia Popowicz, Riley Steward, Jimmy Choi, Levente Koroes, Thomas Chow and Blake Evans-Pritchard.