Thailand facing interest rate quandary

High debt amid slow economy spawns policy tussle

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 South-east 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.