Thailand – Household Sector and Monetary Policy Implications

Monitoring house price inflation and the build-up of household debt is important for the conduct of Thailand’s monetary policy. Although the Bank of Thailand (BOT) does not directly take into account the level of household debt or house price movements when it decides to change short-term interest rates, it recognises that changes in the policy rate could strongly affect house prices, household borrowing and overall consumption. A reduction in the policy rate could lead to an unsustainable increase in debt, thereby raising the risk of undershooting the target inflation rate in the future. At times of easy monetary policy, a rise in both household disposable income and housing prices could encourage households to consume more and build up debt. A boom in house prices could be of great concern to policymakers because it might enable households to increase their consumption by betting on higher expected future incomes, which could affect economic stability.