Thailand Cuts Key Rate to Support Recovery From Floods Amid Global Slump

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 today, a decision predicted by all 15 economists in a Bloomberg News survey. Policy makers 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. Prime Minister Yingluck Shinawatra has pledged to spend 350 billion baht ($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 BOT seems to be quite concerned about the growth outlook,” said Satoshi Ushijima, vice president of the treasury division in Bangkok at Mizuho Corporate Bank Ltd. “While other Asian nations have also eased policies to help growth, Thailand had the floods. So, another rate cut can’t be ruled out.”

The baht weakened 0.2 percent to 31.54 per dollar as of 3:17 p.m. local time. The benchmark SET Index (SET) 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.

Rate ‘Appropriate’

“After two rate cuts, we think the current rate at 3 percent is appropriate for both growth and the inflation outlook,” 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 today.

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, Finance Minister Kittiratt Na-Ranong said last week.

“Thailand can’t afford a repeat of the floods,” Kittiratt said. “No one will give us a second chance.”

Even though the floodwaters receded in December, Western Digital Corp. (WDC) won’t resume full production in Thailand until early in the second half, Chief Executive Officer John Coyne said Jan. 16 in Bangkok. Honda Motor Co. will need to spend more than 50 billion yen ($642 million) to renovate damaged factories, the Nikkei newspaper reported on Jan. 15.

Recovery Delayed

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 (THCTEXPY) shrank 2 percent in December, compared with a 12.4 percent slide a month earlier, the commerce ministry said 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 (THCPIYOY) 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 Feb. 3.

Global Risks

The World Bank cut its global growth forecast by the most in three years last week, predicting the world economy will grow 2.5 percent this year, down from a June estimate of 3.6 percent. Growth in Asian economies is faltering as Europe’s debt woes hurt the region’s exports. China reported last week its weakest expansion in 10 quarters.

The Philippines cut interest rates last week for the first time since July 2009 and Bank Indonesia widened the lower range of its interbank lending rate in a de facto easing of monetary policy. India’s central bank yesterday reduced the amount of deposits lenders need to set aside as reserves for the first time since 2009 and signaled future interest-rate cuts.

“We expect the central bank to pause after this as risks on inflation are still there with the government’s stimulus policies in place,” Thanomsri Fongarunrung, an economist at Phatra Securities Pcl in Bangkok, said before the decision. “They may act again only if the global economy deteriorates.”

To contact the reporter on this story: Suttinee Yuvejwattana in Bangkok at suttinee1@bloomberg.net

To contact the editor responsible for this story: Shamim Adam at sadam2@bloomberg.net

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