Feb. 28 (Bloomberg) -- Thailand's central bank cut its benchmark interest rate for a second time this year to spur the economy after terrorist attacks, stricter investment rules and a slow down in exports shook confidence.

In a decision that came less than two hours after the finance minister resigned, the Bank of Thailand lowered its one- day bond repurchase rate to 4.5 percent from 4.75 percent. Eleven of 15 economists surveyed by Bloomberg expected the decision.

The resignation of Finance Minister Pridiyathorn Devakula is a further blow to Thailand's military-backed government's credibility with investors. Consumer confidence sank to a five- month low last month after bomb blasts in Bangkok, currency controls and amid baht strength that's curbing exports.

``With slowing inflation and weak domestic demand, the interest rate is still on a downward trend,'' Suchada Kirakul, Bank of Thailand assistant governor told reporters at a briefing. ``We hope that will encourage more consumption and investment.''

After today's cut, Thailand joins Indonesia among central banks in Southeast Asia that have lowered borrowing costs twice this year to spur growth. Bank of Thailand lowered borrowing costs on Jan. 17 when it reduced the one-day bond repurchase rate to 4.75 percent from 4.9 percent, its first interest rate cut since June 2003, to spur growth and spending.

``Lower interest rates will help improve consumer's ability to buy new houses with mortgage loans,'' Adisorn Thananun- Narapool, senior executive vice president of Land & Houses Pcl. Thailand's biggest home builder reported a 37 percent slide in 2006 profit, citing declining consumer confidence.

Bombs

Three people died in New Year's Eve bomb attacks in Bangkok that Prime Minister Surayud Chulanont blamed on ``people who lost their political power.'' Surayud, a former army chief, was installed as prime minister after a military junta ousted Prime Minister Thaksin Shinawatra's caretaker government in a Sept. 19 coup, saying it was tainted with corruption and cronyism.

``Domestic demand is very weak and needs stimulation,'' said Isara Ordeedolchest, an economist at Tisco Securities Pcl in Bangkok who predicted the cut. ``Inflation is not a concern.''

Pridiyathorn, also a deputy prime minister, quit Surayud's government because he disagreed with ``some'' Cabinet ministers and this month's appointment as economic adviser of Somkid Jatusripitak, former deputy to Thaksin. Somkid quit after less than a week in the job.

Confidence `Hurt'

Pridiyathorn's resignation will ``hurt confidence,'' said Aran Thammano, one of seven members of the Bank of Thailand's monetary policy board.

A measure of business sentiment slid to 43.9 in January, its lowest since September, the central bank said today. A private investment index dropped 0.6 percent after gaining 0.3 percent in December, while a gauge of private consumption grew 0.1 percent, slowing from 1.4 percent a month earlier, the bank said.

Thailand's economy may grow as little as 4 percent this year after expanding by about 5.1 percent last year, the government and central bank forecast. That would be the slowest pace since 2001. The slowing growth outlook was one of the main reasons for January's rate reduction, the central bank said.

Thailand's inflation rate probably held at the lowest in three months in February amid restrained spending and falling fuel prices. Consumer prices gained 3 percent from a year earlier, matching January's 3 percent increase, according to the median estimate of 19 economists surveyed by Bloomberg News. The government report is due tomorrow at 2:30 p.m. in Bangkok.

Inflation

Inflation is ``not an issue'' for Thailand as oil prices have declined, helping ease price pressure, Tarisa Watanagase, the central bank's governor, said on Feb. 19. Thailand imports almost all of its oil, the price of which has slid by 18 percent from a July 17 record in Dubai.

Thailand's trade surplus in December narrowed to $912 million from a $1.74 billion excess in November as gains in the baht slowed export growth. Shipments abroad, which account for more than 60 percent of the economy, in December rose 16.5 percent from a year earlier to $10.95 billion, a six-month low.

The baht surged 16 percent against the dollar last year, the most among 15 Asia-Pacific currencies tracked by Bloomberg. The gains made Thailand's goods more expensive abroad, eroding the competitiveness of its products and sparking an outcry from exporters.

Aiming to stem the baht's gain, the central bank in December imposed penalties on foreign investments of less than a year. The currency controls triggered the Thai stock market's biggest slide in 16 years, prompting the measure to be abandoned for equity funds a day later. The controls remain in place for bonds, real- estate mutual funds and some foreign currency borrowings.

In January, the government tightened corporate ownership laws to prevent foreigners controlling many Thai companies. Investment from Singapore, the nation's top Southeast Asian investor, slid 88 percent last month amid a diplomatic spat involving the island state's investments in the kingdom, the Bangkok Post reported, citing a Board of Investment official it didn't identify.

To contact the reporters on this story: Anuchit Nguyen in Bangkok at anguyen@bloomberg.net;

Last Updated: February 28, 2007 04:18 EST