Bank of Thailand cuts rates as economy slows

SURPRISES::The Thai central bank sought to stimulate domestic demand, while Singapore announced exports unexpectedly dropped for a second month last month

AFP and Bloomberg, BANGKOK

Thu, Oct 18, 2012 - Page 14

Thailand’s central bank cut interest rates for the first time in nine months yesterday as it looks to support the country’s manufacturing sector and fight the effects of a global slowdown.

The Bank of Thailand’s surprise 25 basis point reduction to 2.75 percent is the first since January as the crucial industrial sector foundered following devastating floods just months before.

Assistant Governor Paiboon Kittisrikangwan said the bank’s Monetary Policy Committee believed the move was warranted to boost domestic demand, with Thai inflationary pressures low and the world economy at “high risk.”

“Overall, the Thai economy continued to expand in the third quarter of this year, but export and production for export are clearly affected by the global economy,” he said in a statement.

Analysts from Capital Economics said that while the move came as a surprise, a cut had been expected next month.

“A key reason is that the manufacturing sector’s recovery from last year’s floods has succumbed to weak global demand,” Asia economist Sukhy Ubhi said.

He said while manufacturing output and exports both grew year-on-year early this year, they are “once more falling at around a double-digit pace.”

“This bodes ill for Thailand, given that manufacturing accounts for around 40 percent of its economic output,” he said.

Thailand’s GDP rose 4.2 percent in the second quarter of the year compared with a year earlier, after a 0.3 percent increase in the first three months of this year. Policymakers will meet again on Nov. 28 for their last meeting of this year.

Separately, Singapore’s exports unexpectedly declined for a second month last month as manufacturers sold fewer electronics and pharmaceuticals to customers abroad.

Non-oil domestic exports slid 3.4 percent from a year earlier, after a revised 10.7 percent drop in August, the trade promotion agency said in a statement yesterday.

Singapore’s central bank held off from easing monetary policy last week even as the GDP contracted in the third quarter, and the trade ministry said growth will be weighed down for the rest of the year by a “subdued” world economy.

Singapore’s electronics shipments by companies such as Venture Corp fell 16.4 percent last month from a year earlier, after slipping 11 percent the previous month. Non-electronics shipments, which include petrochemicals and pharmaceuticals, rose 4.2 percent. Petrochemicals exports gained 5.5 percent, while pharmaceutical shipments slid 3 percent after dropping 3.2 percent in August.

Non-oil exports rose a seasonally adjusted 1.6 percent last month from August, when they dropped 9.1 percent, the trade ministry’s report showed.