The Bank of Thailand's (BoT) Monetary Policy Committee will decide Wednesday whether or not to slash the policy interest rate, which has been kept controversially unchanged since the last cut in April 2015.
Whatever the BoT decides, it's quite clear that ordinary people in this country will continue to suffer from the sad state of Thai interest rates.
Over the past weeks, conflicts over the central bank's policy interest rate made headlines after the Finance Ministry urged the BoT to slash the policy rate by 50 basis points to help stimulate the economy and curb speculative inflows.
Soonruth Bunyamanee is deputy editor, Bangkok Post..
The ministry has also warned that if the repurchase rate is kept unchanged at 1.5%, overseas funds will continue to flood into Thailand for arbitrage. It points out that under the current interest rate, banks have enjoyed profits by taking deposits to invest in the repurchase market and earning an interest rate of 1.5%, with exemption from withholding taxes.
But the BoT argued that it gave more weight to economic and financial system stability, assuring that the economy can still grow at the current rate.
BoT governor Veerathai Santiprabhop said Thailand's current policy rate is quite low compared to other countries in the region. As a result, it is not the root of the capital inflows. The actual cause is the promising economy, he said.
It is natural that the central bank and the Finance Ministry will have different views over economic issues. But the more important issue is how a decision by the BoT, as the policy maker, will affect stakeholders, particularly the public.
If the BoT's Monetary Policy Committee decides to slash the policy rate, commercial banks would follow suit by cutting their deposit rates. However, it is likely that banks will keep their lending rates unchanged or will not cut them anytime soon. As a result, the BoT's decision could widen the gap between deposit and lending rates.
On the other hand, if the committee refuses to cut the rate, people will have no reason to be happy since they are already suffering from the wide interest rate gap.
At present, savings deposit rates at Thai banks range between 0.25% and 0.7%.
On the other hand, the current minimum lending rate (MLR) -- the base rate charged for medium and large clients and companies -- is set between 6% to 8.4%, while the minimum retail rate (MRR) -- the reference rate charged for retail customers -- is even higher at between 7% and 9%.
The figures mean the interest rates that banks charge their corporate and personal borrowers are significantly higher than the deposit rates they pay their depositors. Put simply, commercial banks have gained a high margin from the interest rate spread.
According to World Bank data, Thailand has had a high interest rate spread for several years, hindering its efforts to solve inequalities.
Last year, Thailand's interest rate spread was ranked second highest among Asean countries at 5% after Singapore (5.2%). The interest rate spread in Malaysia was 1.5%, it was 1.9% in Vietnam, 4% in the Philippines and 4.7% in Indonesia.
Some argue that the low deposit rates do not affect a lot of people because the rates for fixed- and longer-term deposits are higher than those for savings accounts. In addition, they claim that only rich people are affected by the low deposit rates.
The argument is not convincing. True, the fixed deposit interest rates are higher than those of savings account rates. But they are still much lower than the lending interest rates.
For example, three-month fixed deposit account rates are between 0.5%-1.5%, six-month rates are 0.6%-1.6% and 12-month rates are 0.75%-1.7%.
According to the BoT data, most deposits are made in savings accounts. There are 81.9 million savings accounts in Thailand worth 6.8 trillion baht in total. Meanwhile, there are far fewer fixed deposit accounts -- 3.1 million accounts of three-month fixed deposits worth 898 billion baht in total, 2.4 million accounts of 12-month fixed deposits worth 1.06 trillion baht, and about 970,000 accounts of six-month fixed deposits worth 724 billion baht.
It appears that most of those who own savings accounts and earn money from the meagre interest rates are not rich people who usually have several other investment alternatives, but average Thais.
In addition, the group that bears the brunt of the low deposit rates are retirees who depend very much on their life savings as a source of income.
Above all, the big issue is the large spread of interest rates which provides less benefits to retail customers, whether they are borrowers or depositors.
Some bankers argue that the actual margins of local banks are not that high. They say the banks' real margins are based on the so-called net interest margin (NIM) which is the interest gain deducting real costs to cover risks.
According to their financial statements, the average NIM of the five largest commercial banks, whose lending accounts for 64% of total loans, was 3.25% in the middle of this year.
The five banks are Bangkok Bank, Kasikornbank, Krungthai Bank, Siam Commercial Bank and Bank of Ayudhya.
Bankers say when all banks are considered, the average NIM is only about 2.2-2.3%.
That argument is not wrong. But it is still not very convincing.
The bankers claim the low NIM to justify the wide spread of interest rates, while actual deposit rates remain low and lending rates remain high.
This means banks have passed on all the responsibilities and risks to their customers.
For ordinary people, the fact is painful. As depositors, they gain very little from very low interest rates. As borrowers, they suffer from paying high rates.
On the contrary, all banks still enjoy high interest rate margins, despite claims that the margins are much lower than they were in the past.
Shouldn't banks also have to share the risks associated with lending? Is it fair that the banks pass on the the entire risk-associated financial burden to depositors and borrowers, particularly individuals and small firms, by keeping the interest rates spread high?
In fact, it doesn't make any difference for ordinary people whether the BoT cuts or maintains its policy rate Wednesday. The majority of people will only suffer further from the exploitative dynamic of capitalism in the banking sector.
