Thu, Jan 26, 2012 - Page 5 News List

Thailand cuts rate further to boost growth

POLICY:The impact of last year’s floods was greater than estimated, and a recovery in manufacturing may be delayed by one to two months, the central bank governor said

Bloomberg

The Bank of Thailand cut interest rates for the second consecutive meeting to help spur a recovery from the worst floods in almost 70 years as a deteriorating global economy threatens growth.

The central bank reduced its one-day bond repurchase rate by a quarter of a percentage point to 3 percent, it said in Bangkok yesterday.

Policymakers cut the rate for the first time in more than two years at the previous meeting on Nov. 30.

Thailand joins the Philippines, Indonesia and India in easing monetary policy after the World Bank said last week a recession in the euro region threatens to exacerbate a slowdown in emerging markets. Thai Prime Minister Yingluck Shinawatra has pledged to spend 350 billion baht (US$11.1 billion) on infrastructure to prevent a repeat of floods that caused the worst slump in industrial output in more than 10 years.

The baht weakened 0.2 percent to 31.54 per US dollar as of 3:17pm. The benchmark SET Index lost 0.7 percent. The currency has slipped about 2.2 percent in the past three months and the stock index gained about 12 percent.

“After two rate cuts, we think the current rate at 3 percent is appropriate for both growth and the inflation outlook,” Bank of Thailand Assistant Governor Paiboon Kittisrikangwan said at a briefing.

The economic impact of last year’s floods was greater than earlier estimated, and a recovery in manufacturing may be delayed by one to two months, Paiboon said.

The floods shuttered more than 16,000 factories, reducing Thailand’s economic growth last year to about 1.5 percent, compared with estimates of as high as 4.5 percent before the deluge, Thai Finance Minister Kittiratt Na-Ranong said last week.

Thailand’s economy, the biggest in Southeast Asia after Indonesia, may have contracted 5 percent last quarter from a year earlier, according to the finance ministry. Exports shrank 2 percent last month, compared with a 12.4 percent slide a month earlier, the commerce ministry said on Jan. 20.

Economic growth last year will be lower than an earlier estimate of 1.8 percent, Paiboon said.

The central bank now expects manufacturing output to return to normal in the third quarter, compared with an earlier forecast for a second-quarter recovery, he said.

Inflation pressure has eased, reflecting a more prolonged recovery in domestic demand and a slowdown in commodity price gains, he said. Reconstruction spending and government stimulus measures may still cause inflation to accelerate, he said.

The central bank is scheduled to give an updated economic forecast on Friday next week.

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